COOPERATIVE BEHAVIOR IN A COMPETITIVE MARKET

We study the merger of firms producing a homogeneous product in a competitive environment. We consider an industry in which the producing agents consist of a set of identical competitive firms, and another set of firms endowed with inputs (characteristics), for which there is market failure. Experience, management skills or marketing skills are examples of such characteristics. We provide sufficient conditions under which such cooperation is possible. Cooperation will not emerge unless each firm is better off by cooperating. We pose this issue as a cooperative profit game and derive conditions for economies of cooperation, guaranteeing non-emptiness of its core. It is also shown that under these conditions the core contains the Shapley value and Aumann-Shapley imputations.