The stability of group formation

In a large range of political and economic situations, the formation of coordinated groups is driven by two opposite forces: increasing returns to size on the one hand, the heterogeneity of preferences, which hampers coordination , on the other. An important question is whether competitive pressures, such as described by free mobility and free entry, lead to an efficient and stable organization of the society into possibly several self-sufficient groups. This paper discusses theoretical approaches to this question as well as recent empirical studies.