Coalition Formation in Constant Sum Queueing Games

Abstract: We analyse a coalition formation game between strategic service providers of a congestible service. The key novelty of our formulation is that it is a constant sum game, i.e., the total payoff across all service providers (or coalitions of providers) is fixed, and dictated by the total size of the market. The game thus captures the tension between resource pooling (to benefit from the resulting statistical economies of scale) and competition between coalitions over market share. In a departure from the prior literature on resource pooling for congestible services, we show that the grand coalition is in general not stable, once we allow for competition over market share. Instead, the stable configurations are duopolies, where the dominant coalition exploits its economies of scale to corner a disproportionate market share. We analyse the stable duopolies that emerge from this interaction, and also study a dynamic variant of this game.