Stable coalition structures with open membership and asymmetric firms

I study games of coalition formation with open membership where firms form associations in order to decrease their costs before competing on the marke t. According to previous analysts, only the grand coalition forms at the Na sh equilibrium of such games. I show that this result hinges on the assumpt ion of symmetric firms. I therefore introduce asymmetric firms in a game wh ere only two associations can form. I demonstrate that there exists a coali tion-proof Nash equilibrium coalition structure in this game, and that when the equilibrium involves two associations, ail the members of an associati on have a higher taste for this association than all nonmembers do. Journal of Economic Literature Classification Numbers: C70, C72, L13. (C) 2000 Aca demic Press.