Multilateral matching with scale economies

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.