Abstract: The formation of coalitions in a Gaussian interference channel where the receivers are allowed to cooperate is studied under the framework of coalitional game theory. Allowing any arbitrary sharing of the total rate achieved by a coalition between its member links, it is shown that the grand coalition (coalition of all links) maximizes spectrum utilization and is also stable, that is, the links in this coalition have no incentives to leave and form other coalitions. The issue of fairness in allocating rates to members of a grand coalition is addressed via a Nash bargaining solution where each link utility is modeled as the rate gained by being in a coalition relative to the rate achieved in the interference channel. Further, a rate allocation solution using proportional fairness is also presented and the results are illustrated with examples
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