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Credible collusion in multimarket oligopoly

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  • Timothy L. Sorenson

    (Department of Economics, Albers School of Business and Economics, Seattle University, Washington, USA)

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    Abstract

    This article refines an established explanation of how multimarket contact facilitates collusion when firms enjoy reciprocal advantages across markets: When there are reciprocal asymmetries between firms, multimarket contact allows them not only to develop spheres of influence, but also to implement attractively simple strategies that are subgame perfect and weakly renegotiation proof. Hence, collusive equilibria are supported by fully credible punishments. A significant implication is, multimarket contact involving reciprocal differences between firms may be more facilitating to their cooperative efforts than multimarket contact based on other factors. The article discusses existing empirical work as it relates to this implication. Copyright © 2007 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/mde.1314
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 28 (2007)
    Issue (Month): 2 ()
    Pages: 115-128

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    Handle: RePEc:wly:mgtdec:v:28:y:2007:i:2:p:115-128

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    Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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    1. Hughes, Kirsty & Oughton, Christine, 1993. "Diversification, Multi-market Contact and Profitability," Economica, London School of Economics and Political Science, vol. 60(238), pages 203-24, May.
    2. Hitoshi Matsushima, 1998. "Multimarket Contact, Imperfect Monitoring, and Implicit Collusion," CIRJE F-Series CIRJE-F-24, CIRJE, Faculty of Economics, University of Tokyo.
    3. Fudenberg, D. & Levine, D.K. & Maskin, E., 1989. "The Folk Theorem With Inperfect Public Information," Working papers 523, Massachusetts Institute of Technology (MIT), Department of Economics.
    4. Fernandez, Nerea & Marin, Pedro L, 1998. "Market Power and Multimarket Contact: Some Evidence from the Spanish Hotel Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 46(3), pages 301-15, September.
    5. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
    6. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, vol. 39(1), pages 191-225, June.
    7. Scott, John T, 1982. "Multimarket Contact and Economic Performance," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 368-75, August.
    8. Farrell, Joseph & Maskin, Eric, 1989. "Renegotiation in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 327-360, December.
    9. David G. Pearce, 1987. "Renegotiation-Proof Equilibria: Collective Rationality and Intertemporal Cooperation," Cowles Foundation Discussion Papers 855, Cowles Foundation for Research in Economics, Yale University.
    10. Douglas Bernheim, B. & Ray, Debraj, 1989. "Collective dynamic consistency in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 295-326, December.
    11. Bergin, J. & Macleod, B., 1989. "Eficiency And Renegotiation In Repeated Games," UFAE and IAE Working Papers 121-89, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    12. Meghan R. Busse, 2000. "Multimarket Contact and Price Coordination in the Cellular Telephone Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(3), pages 287-320, 06.
    13. Demougin, Dominique & Fishman, Arthur, 1991. "Efficient Budget Balancing Cartel Equilibria with Imperfect Monitoring," Economic Theory, Springer, vol. 1(4), pages 373-83, October.
    14. Owen R. Phillips & Charles F. Mason, 1992. "Mutual Forbearance in Experimental Conglomerate Markets," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 395-414, Autumn.
    15. Feinberg, Robert M., 1984. "Mutual forbearance as an extension of oligopoly theory," Journal of Economics and Business, Elsevier, vol. 36(2), pages 243-249, May.
    16. Spagnolo, Giancarlo, 2005. "Managerial incentives and collusive behavior," European Economic Review, Elsevier, vol. 49(6), pages 1501-1523, August.
    17. Evans, Robert & Maskin, Eric, 1989. "Efficient renegotiation--proof equilibria in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 361-369, December.
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    Cited by:
    1. Paolo Coccorese & Alfonso Pellecchia, 2009. "Multimarket Contact and Profitability in Banking: Evidence from Italy," Journal of Financial Services Research, Springer, vol. 35(3), pages 245-271, June.
    2. Coccorese, Paolo & Pellecchia, Alfonso, 2013. "Multimarket contact, competition and pricing in banking," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 187-214.

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