Endogenous Coalition Formation in Rivalry

Abstract

This paper studies endogenous coalition formation in an environment where continuing conflict exists. A number of players compete for an indivisible prize and the probability of winning for a player depends on his initial resource as well as the distribution of initial resources among the other players. Players can pool their resources together to increase their probabilities of winning through coalition formation. If a coalition wins, the players in the coalition will further compete and possibly form new coalitions. The game continues until one individual winner is left. We determine subgame perfect equilibria for the game of three or four players and provide conditions under which the equilibrium coalition structures involve a balance of power. We also illustrate that there can be no equilibrium coalition structure. Our analysis sheds some lights on problems of temporary cooperation among heterogeneous individuals who are rivals in nature.Coalition formation,Conflicts,Rivalry