Multimarket Contact, Concavity and Collusion
Economy and Society
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.