Coalition Formation and Price of Anarchy in Cournot Oligopolies

  • Nicole Immorlica
  • Evangelos Markakis
  • Georgios Piliouras
Conference paper

DOI: 10.1007/978-3-642-17572-5_22

Part of the Lecture Notes in Computer Science book series (LNCS, volume 6484)
Cite this paper as:
Immorlica N., Markakis E., Piliouras G. (2010) Coalition Formation and Price of Anarchy in Cournot Oligopolies. In: Saberi A. (eds) Internet and Network Economics. WINE 2010. Lecture Notes in Computer Science, vol 6484. Springer, Berlin, Heidelberg

Abstract

Non-cooperative game theory purports that economic agents behave with little regard towards the negative externalities they impose on each other. Such behaviors generally lead to inefficient outcomes where the social welfare is bounded away from its optimal value. However, in practice, self-interested individuals explore the possibility of circumventing such negative externalities by forming coalitions. What sort of coalitions should we expect to arise? How do they affect the social welfare?

We study these questions in the setting of Cournot markets, one of the most prevalent models of firm competition. Our model of coalition formation has two dynamic aspects. First, agents choose strategically how to update the current coalition partition. Furthermore, coalitions compete repeatedly between themselves trying to minimize their long-term regret. We prove tight bounds on the social welfare, which are significantly higher than that of the Nash equilibria of the original game. Furthermore, this improvement in performance is robust across different supply-demand curves and depends only on the size of the market.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2010

Authors and Affiliations

  • Nicole Immorlica
    • 1
  • Evangelos Markakis
    • 2
  • Georgios Piliouras
    • 3
    • 4
  1. 1.Dept. of EECSNorthwestern UniversityEvanstonUSA
  2. 2.Dept of InformaticsAthens Univ. of Economics and BusinessAthensGreece
  3. 3.Dept. of EEGeorgia Institute of TechnologyAtlantaUSA
  4. 4.Dept. of EconomicsJohn Hopkins UniversityBaltimoreUSA

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