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 noncooperatively, the core is nonempty in games with strategic complements. We apply this result to Cournot and Bertrand games and to public goods economies