Using the Core to Predict Coalition Formation

The main objective of this work is to use the defining principles of the core solution concept to determine not only payoffs but coalition formation. Given a cooperative transferable utility (TU) game, we propose two non-cooperative procedures that deliver a natural and non-empty core extension, the aspiration core (Cross 1967, Bennett 1983), together with the supporting coalitions it implies. As expected, if the cooperative game is balanced, the grand coalition forms. However, if the core is empty, other coalitions arise. Following the aspiration literature, not only partitions but also overlapping coalition configurations are allowed. Our procedures interpret this fact in different ways. The first game allows players to participate simultaneously in more than one coalition, while the second assigns probabilities to the formation of potentially overlapping coalitions. We use the strong Nash and subgame perfect Nash equilibrium concepts.