Stability in matching with externalities: Pairs competition and oligopolistic joint ventures.

This paper presents one-to-one matching and assignment problems with externalities across pairs. Examples include as pairs figure skating competition and joint ventures in oligopolistic markets. In these models, players care not only about their partners but also about what rival pairs are formed. Therefore, it is important for a deviating pair to know which matching will be realized after it deviates from a matching (via an effectiveness function) in order to define pairwise stable matching. We find that the assortative matching may fail to be pairwise stable under an effectiveness function commonly used in matching and coalition formation literature. In contrast, it is pairwise stable under a swapping effectiveness function which is natural in our environments. We discuss two generalizations of our model, intrinsic preferences over partners and pair-specific match qualities. [ABSTRACT FROM AUTHOR]