Competitive outcomes and endogenous coalition formation in an n-person game

We extend the analysis of competitive outcomes in TU market games of Shapley and Shubik [Shapley, L.S., Shubik, M., 1975. Competitive outcomes in the cores of market games. International Journal of Game Theory 4, 229-237] in two ways. First, our representing economies are coalition production economies. Second, and more importantly, our analysis holds for arbitrary TU games. By adopting the C-stable set of Guesnerie and Oddou [Guesnerie, R., Oddou, C., 1979. On economic games which are not necessarily superadditive. Economics Letters 3, 301-306], renamed c-core in our paper, we are able to characterize competitive outcomes even in games with empty core. As competitive outcomes are associated with specific coalition structures, our main result provides an endogenous determination of coalition building and shows that the c-core of any TU game coincides with the set of competitive outcomes of the corresponding coalition production economy. (C) 2007 Elsevier B.V. All rights reserved.