  We derive composite luminosity functions (LF) for galaxies in groups and
examine the behaviour of the LF as a function of group luminosity (used as an
indicator of group or halo mass). We consider both the entire galaxy population
and split galaxies into red and blue (quiescent and star forming) samples, in
order to examine possible mechanisms behind observed variations of galaxy
properties with environment. We find evidence that $M^*$ brightens and $\alpha$
steepens with group luminosity, until a threshold value where the LF parameters
stabilize at those found in rich clusters. The effect is seen in the total LF
and for the blue and red galaxies separately. The behaviour of the quiescent
and star-forming samples is qualitatively consistent with variations resulting
from interactions and mergers, where mergers build the bright end of the
luminosity function at the same time as dwarf irregulars have their star
formation quenched and evolve into dwarf ellipticals. These processes appear to
take place preferentially in low luminosity groups and to be complete at a
group luminosity of -22.5 in $B$, corresponding to a halo mass of order
$10^{13.5} M_{\odot}$.
