Coalition Formation with Binding Agreements in Contests
27 Pages Posted: 16 Feb 2016 Last revised: 9 Dec 2020
Date Written: October 21, 2020
This paper studies the problem of endogenous coalition formation in contests. The model presented adopts a novel approach by assuming certain properties for the winning probability pertaining to a wide class of Tullock contest success functions. Next, we analyse a one-shot sequential coalition formation game proposed by Bloch (1996) for an arbitrary number of symmetric players and exogenous effort under the restrictions imposed by these properties. We show that there exists a unique, but asymmetric equilibrium. That is, the equilibrium consists of two or more coalitions where no two coalitions are of equal size. This result is interesting because our model is symmetrical, but yields an asymmetric power distribution. Lastly, we extend these results to include endogenous efforts.
Keywords: Contest Theory, Coalition Formation, Non-cooperative game theory
JEL Classification: C72, C78, D01, D70
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