A Stable Market Structure as the Solution for Cournot Oligopolies

A stable market structure is a partition of the firms in an industry such that there is no incentive for any breakups or mergers. Characterizing such stability requires an endogenization of both the core and Cournot equilibrium as well as all hybrid equilibria. This paper solves for the stable partitions in a general oligopoly by providing a tractable condition: a partition is stable if and only if its total profit is above the related minimum no blocking payoff. It then shows how cost asymmetries, internal cooperation, market power, and merging costs will affect the stable partitions in three specific oligopoly models. JEL Classification Number: C62, C71, C72, D43, L10