Coalition formation through multilateral bargaining in an oligopolistic industry

Our thesis is concerned with coalition formation in an oligopolistic industry, the stability of coalitions, and the induced welfare. The central axis of our work focuses on industrial organization. However, we draw heavily from the bargaining theory literature both to model coalition formation and to measure its sustainability. To this end, we apply Bennett and Houba's (1992) stability conditions. We show that in our model, there is no stable industry structure for most of the cost settings, but when there is, it is most likely the grand coalition. And not surprisingly, for the firms that produce, decreasing cost levels raise welfare.