Multimarket Contact, Concavity and Collusion
Date
01.01.1999
01.01.1999
Authors
Giancarlo Spagnolo
JEL Code
C72,D43,L13,L21
C72,D43,L13,L21
Keywords:
Repeated games,Oligopoly,Collusion,Co-operation,Conglomeration,Mergers
Repeated games,Oligopoly,Collusion,Co-operation,Conglomeration,Mergers
Publisher
Economy and Society
Economy and Society
Editor
Fausto Panunzi
Fausto Panunzi
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.