Coalitional Approaches to Collusive Agreements in Oligopoly Games

Abstract

In this paper we review a number of coalitional solution concepts for the analysis of the stability of cartels and mergers under oligopoly. We show that, although so far the industrial organization and the cooperative game-theoretic literature have proceeded somehow independently on this topic, the two approaches are highly inter-connected. We first consider the basic problem of the stability of the whole industry association of firms under oligopoly and, for this purpose, we introduce the concept of core in games with externalities. We show that different assumptions on the behavior as well as on the timing of the coalitions of firms yield very different results on the set of allocations which are core-stable. We then consider the stability of associations of…firms organized in coalition structures different from the grand coalition. To this end, various coalition formation games recently introduced by the so called endogenous coalition formation literature are critically reviewed. Again, different assumptions concerning the timing and the behavior of firms are shown to yield a wide range of different results.

Keywords: cooperative games, coalitions, mergers, cartels, core, games with externalities, endogenous coalition formation

JEL Classification: C70, C71, D23, D43