We study coalition formation games with externalities where each agent's payoff depends on the entire partition. As in Gomes and Jehiel (2005) and Hyndman and Ray (2007), we assume that coalitions form sequentially and agreements are renegotiable. Instead of a fixed order protocol,  we use a "bidding mechanism" to determine proposals and transfers among the agents. We show that such a mechanism facilitates the attainment of efficiency; in particular,
our game admits a Markov perfect equilibrium with the property of full dynamic efficiency.   Nevertheless, inefficient equilibria can also emerge.