Unsystematic Risk and Coalition Formation in Product Markets
32 Pages Posted: 23 Aug 1999
There are 2 versions of this paper
Unsystematic Risk and Coalition Formation in Product Markets
Date Written: July 1999
Abstract
We study the conjecture that increasing market volatility leads to larger coalitions in an oligopoly. Here, coalition formation decisions are made in a noncooperative game by risk averse firms. They use a sequential offer-counter-offer procedure initiated by Selten and Rubinstein. We find that the conjecture generally fails in a small oligopoly whose firms play a unanimity game but it is validated in an oligopoly that allows open membership. However, it is valid in a small oligpoly if market volatility is sufficiently high, whatever the rule of membership.
JEL Classification: C72, L13
Suggested Citation: Suggested Citation