A Sequential Approach to the Characteristic Function and the Core in Games with Externalities

This paper proposes a formulation of coalitional payoff possibilities in games with externalities, based on the assumption that forming coalitions can exploit a ”first mover advantage”. We derive a characteristic function and show that when outside players play their best response noncooper- atively, the core is nonempty in games with strategic complements. We apply this result to Cournot and Bertrand games and to public goods economies.