Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2013:2: A Competitive Partnership Formation Process

Tommy Andersson (), Jens Gudmundsson (), Adolphus Talman () and Zaifu Yang ()
Additional contact information
Tommy Andersson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Jens Gudmundsson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Adolphus Talman: CentER, Tilburg University, Postal: Department of Econometrics and Operations Research , Tilburg University, 5000 LE Tilburg, The Netherlands
Zaifu Yang: Department of Economics and Related Studies, University of York, Postal: York YO10 5DD, UK

Abstract: A group of heterogeneous agents may form partnerships in pairs. All single agents as well as all partnerships generate values. If two agents choose to cooperate, they need to specify how to split their joint value among one another. In equilibrium, which may or may not exist, no agents have incentives to break up or form new partnerships. This paper proposes a dynamic competitive adjustment process that always either finds an equilibrium or exclusively disproves the existence of any equilibrium in finitely many steps. When an equilibrium exists, partnership and revenue distribution will be automatically and endogenously determined by the process. Moreover, several fundamental properties of the equilibrium solution and the model are derived.

Keywords: Partnership formation; adjustment process; equilibrium; assignment market

JEL-codes: C62; C72; D02

18 pages, February 4, 2013

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