Multilateral matching with scale economies

TL;DR

This paper introduces a model of multilateral matching with scale economies, demonstrating the existence of stable outcomes and proposing algorithms for their computation in markets like international agreements.

Contribution

It formalizes multilateral matching with scale economies and provides algorithms to find stable outcomes, extending previous models to more complex negotiation environments.

Findings

Stable outcomes exist under scale economies.

A Constrained Serial Dictatorship algorithm finds stable matches.

Applicable to markets with bilateral agreements like international trade.

Abstract

This paper studies multilateral matching in which agents may negotiate contracts within any coalition. We assume scale economies such that an agent substitutes some existing contracts with new ones only if the latter involve a set of partners that is weakly larger than the original. A weakly setwise stable (or setwise stable) outcome exists and can be found by a Constrained Serial Dictatorship algorithm in markets with scale economies (resp. ordinal scale economies). The scale economies condition applies to an environment in which agents cooperate to achieve targets, such as markets in which countries sign bilateral agreements.