Ex ante installation cost sharing:

K=total installation cost,

L= distance/transportation cost, function of facility location.
N=3; every agent will have to bear a fixed cost equal to K/n, with n=agents in
coalition.

c ( ai )= K , (transportation cost would obviously be zero)

c ( ai , a j ) =2

( K2 )+ L i+ L j

c ( ai , a j , a z )=3

( K3 )+ L1+ L 2+ L3

Core constraints:

c ( N ) i=

K
+li < K which is no incentive to go for a single agent coalition, which can be
3

rearranged as

2
K > L
3

or

3
L <K
2

(1)

Second constraint(deviation to a 2 agents coalition)

First notice that in the second cost function, Li+Lj=|ai aj|, which is the distance
between the two demand points(this is because any location point not lying on the
line-distance, could be improved for both agents by taking a point perpendicular on
the line itself), and it is constant.

2
c ( N ) ij= K + ( L + L Nj ) < K + aiaj
3
K

( L +L Nj ) |aiaj|< 3

, rearrange to obtain:

(2)

Which implies a very nice relation between total transportation costs benefit and fixed
cost benefits. In particular we could argue that the total transportation cost under the
grand coalition may be larger than those in the smaller 2-person coalition, as long as
this difference doesnt exceed K/3 .