Coalition formation and potential games

In this paper we study the formation of coalition structures in situations described by a cooperative game. Players choose independently which coaliti on they want to join. The payoffs to the players are determined by an alloc ation rule on the underlying game and the coalition structure that results from the strategies of the players according to some formation rule. We stu dy two well-known coalition structure formation rules and show that for bot h formation rules there exists a unique component-efficient allocation rule that results in a potential game. (C) 2001 Academic Press.