FEEM working papers "Note di lavoro" series
1999 .061

Multimarket Contact, Concavity and Collusion


Authors: Giancarlo Spagnolo
Series: Economy and Society
Editor: Fausto Panunzi
Type: Journal
Keywords: Repeated games,Oligopoly,Collusion,Co-operation,Conglomeration,Mergers
JEL n.: C72,D43,L13,L21
JEL: Journal of Economic Theory
Date: 1999

Abstract

Following Bernheim and Whinston (1990), this paper addresses the effects of multimarket contact on firms' ability to collude in repeated oligopolies. Managerial incentives, taxation and financial market imperfections tend to make firms' objective function strictly concave in profits and market games "interdependent"; firms' payoffs in each market depend on how they are doing in others. In this case multimarket contact always facilitates collusion, and may make it sustainable in all markets even when otherwise it would not be sustainable in any. The effects of conglomeration and horizontal mergers are discussed. The results extend to non-oligopolistic supergames with objective functions submodular in material payoffs.

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