Multilateral Negotiations and Formation of Coalitions

55 Pages Posted: 18 Jul 2001

See all articles by Armando R. Gomes

Armando R. Gomes

Washington University in St. Louis - John M. Olin Business School; Washington University in Saint Louis - John M. Olin Business School

Date Written: March 2001

Abstract

This paper studies multilateral negotiations among n players in an environment where there are externalities and where contracts forming coalitions can be written and renegotiated. The negotiation process is modeled as a sequential game of offers and counteroffers, and we focus on the stationary subgame perfect equilibria, which jointly determine both the expected value of players and the Markov state transition probability that encodes the path of coalition formation. The existence of equilibria is established, and Pareto efficiency is guaranteed if the grand coalition is efficient, despite the existence of externalities. Also, for almost all games (except in a set of measure zero) the equilibrium is locally unique and stable, and the number of equilibria is finite and odd. Global uniqueness does not hold in general (a public good provision example has seven equilibria), but a sufficient condition for global uniqueness is derived. Using this sufficient condition, we show that there is a globally unique equilibrium in three-player superadditive games. Comparative statics analysis can be easily carried out using standard calculus tools, and some new insights emerge from the investigation of the classic apex and quota games.

Keywords: Coalitional bargaining, contracts, externalities, renegotiation

JEL Classification: C71, C72, C78, D62

Suggested Citation

Gomes, Armando R. and Gomes, Armando R., Multilateral Negotiations and Formation of Coalitions (March 2001). Available at SSRN: https://ssrn.com/abstract=277110 or http://dx.doi.org/10.2139/ssrn.277110

Armando R. Gomes (Contact Author)

Washington University in Saint Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-4569 (Phone)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States
314-935-4569 (Phone)

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