FEEM working papers "Note di lavoro" series
2001 .011

A Sequential Approach to the Characteristic Function and the Core in Games with Externalities


Authors: Sergio Currarini, Marco Marini
Series: Climate Change and Sustainable Development
Editor: Carlo Carraro
Type: Book
Keywords: Core,cooperative games,externalities
JEL n.: C7
JEL: Advances in Economic Design
Pages: pp. 233-250
Published in: Springer
Date: 2003

Abstract

This paper proposes a formulation of coalitional payoff possibilities in games with externalities, based on the assumption that forming coalitions can exploit a "first mover advantage". We derive a characteristic function and show that when outside players play their best response noncooperatively, the core is always nonempty when the game has strategic complementarities. We apply this result to cartel formation in Bertrand oligopoly and in Shapley-Shubik (1977) strategic market games.
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