Endogenous Structures of Association in Oligopolies

Abstract

The formulation of associations of firms in an oligopoly with linear demand is analyzed as a two-stage noncooperative game. In the first stage, firms form associations in order to decrease their costs, and in the second stage they compete on the market. Examples of associations include R&D joint ventures and groups of firms adopting common standards. In equilibrium, the associations formed exhibit two general features: they are asymmetric and inefficient.