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On the competitive effects of multimarket contact

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  • Arie, Guy
  • Markovich, Sarit
  • Varela, Mauricio

Abstract

Changes in the extent of multi-market contact (MMC) between firms often affect market outcomes – quantities and prices. We show that a strategic but purely competitive effect of changes in MMC can change the quantity provided in a market by a firm by as much as 50%, and the prices a firm sets by as much as 20%. This may have important welfare implications, specifically with regards to horizontal mergers. Studying mergers that span several markets, we show that a myopic merger policy may thwart a surplus-increasing merger wave. The analysis does not rely on any tacit or explicit collusive behavior by the firms.

Suggested Citation

  • Arie, Guy & Markovich, Sarit & Varela, Mauricio, 2017. "On the competitive effects of multimarket contact," European Economic Review, Elsevier, vol. 100(C), pages 116-142.
    • Handle: RePEc:eee:eecrev:v:100:y:2017:i:c:p:116-142
    DOI: 10.1016/j.euroecorev.2017.08.002
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    2. Mauricio Varela & Madhu Viswanathan, 2020. "Savings that hurt: Production rationalization and its effect on prices," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(1), pages 147-172, January.

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    More about this item

    Keywords

    Multimarket contact; Horizontal mergers; Strategic complements; Strategic substitutes;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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