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Multimarket Contact, Imperfect Monitoring, and Implicit Collusion

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  • Matsushima, Hitoshi

Abstract

This paper presents a theoretical foundation of the possibility that multimarket contact enhances firms' abilities to sustain implicit collusion. When firms operate in a single market and cannot perfectly monitor the opponents' choices of supply, it is impossible to achieve efficiency among these firms in a self-enforcing way, even though these firms have the long-term strategic relationship. By using models of infinitely repeated game with discounting, we shows that when firms encounter each other in a number of distinct markets and the degree of multimarket contact is large enough, efficiency can be approximately sustained by a subgame perfect equilibrium. This efficiency theorem in the imperfect monitoring case holds under almost the same condition on the discount factor as the perfect monitoring case.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 98 (2001)
Issue (Month): 1 (May)
Pages: 158-178

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Handle: RePEc:eee:jetheo:v:98:y:2001:i:1:p:158-178

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Web page: http://www.elsevier.com/locate/inca/622869

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References

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  1. Friedman, James W, 1971. "A Non-cooperative Equilibrium for Supergames," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(113), pages 1-12, January.
  2. Corwin D. Edwards, 1955. "Conglomerate Bigness as a Source of Power," NBER Chapters, in: Business Concentration and Price Policy, pages 331-359 National Bureau of Economic Research, Inc.
  3. Michihiro Kandori & Hitoshi Matsushima, 1998. "Private Observation, Communication and Collusion," Econometrica, Econometric Society, Econometric Society, vol. 66(3), pages 627-652, May.
  4. Dilip Abreu & Paul Milgrom & David Pearce, 1997. "Information and timing in repeated partnerships," Levine's Working Paper Archive 636, David K. Levine.
  5. Radner, Roy, 1986. "Repeated Partnership Games with Imperfect Monitoring and No Discounting," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(1), pages 43-57, January.
  6. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
  7. Fudenberg, Drew & Levine, David I & Maskin, Eric, 1994. "The Folk Theorem with Imperfect Public Information," Econometrica, Econometric Society, Econometric Society, vol. 62(5), pages 997-1039, September.
  8. Green, Edward J. & Porter, Robert H., 1982. "Noncooperative Collusion Under Imperfect Price Information," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 367, California Institute of Technology, Division of the Humanities and Social Sciences.
  9. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, Econometric Society, vol. 56(2), pages 383-96, March.
  10. Matsushima, Hitoshi, 1989. "Efficiency in repeated games with imperfect monitoring," Journal of Economic Theory, Elsevier, Elsevier, vol. 48(2), pages 428-442, August.
  11. Radner, Roy & Myerson, Roger & Maskin, Eric, 1986. "An Example of a Repeated Partnership Game with Discounting and with Uniformly Inefficient Equilibria," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 53(1), pages 59-69, January.
  12. Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 93(3), pages 488-511, June.
  13. Michihiro Kandori & Hitoshi Matsushima, 1997. "Private observation and Communication and Collusion," Levine's Working Paper Archive 1256, David K. Levine.
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