The formation of coalitions to achieve both collaborative and competitive goals is a phenomenon we see all around us. The list of examples of this phenomenon is long and varied: production cartels, political lobbies, customs unions, environmental coalitions, and ethnic alliances are just a few...

Consider an environment with widespread externalities, and suppose that binding agreements can be written. We study coalition formation in such a setting. Our analysis proceeds by defining on a partition function an extensive form bargaining game. We establish the existence of a stationary...