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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. Demougin, Dominique & Fishman, Arthur, 1991. "Efficient Budget Balancing Cartel Equilibria with Imperfect Monitoring," Economic Theory, Springer, Springer, vol. 1(4), pages 373-83, October.
    2. Hitoshi Matsushima, 1998. "Multimarket Contact, Imperfect Monitoring, and Implicit Collusion," CIRJE F-Series, CIRJE, Faculty of Economics, University of Tokyo CIRJE-F-24, CIRJE, Faculty of Economics, University of Tokyo.
    3. James Bergin & Bentley MacLeod, 1989. "Efficiency and Renegotiation in Repeated Games," Working Papers, Queen's University, Department of Economics 752, Queen's University, Department of Economics.
    4. Meghan R. Busse, 2000. "Multimarket Contact and Price Coordination in the Cellular Telephone Industry," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 9(3), pages 287-320, 06.
    5. Abreu, Dilip, 1986. "Extremal equilibria of oligopolistic supergames," Journal of Economic Theory, Elsevier, Elsevier, vol. 39(1), pages 191-225, June.
    6. Spagnolo, Giancarlo, 2004. "Managerial Incentives and Collusive Behaviour," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4506, C.E.P.R. Discussion Papers.
    7. 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.
    8. Scott, John T, 1982. "Multimarket Contact and Economic Performance," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 368-75, August.
    9. Hughes, Kirsty & Oughton, Christine, 1993. "Diversification, Multi-market Contact and Profitability," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 60(238), pages 203-24, May.
    10. Joseph Farrell and Eric Maskin., 1987. "Renegotiation in Repeated Games," Economics Working Papers, University of California at Berkeley 8759, University of California at Berkeley.
    11. Fernandez, Nerea & Marin, Pedro L, 1998. "Market Power and Multimarket Contact: Some Evidence from the Spanish Hotel Industry," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 46(3), pages 301-15, September.
    12. Feinberg, Robert M., 1984. "Mutual forbearance as an extension of oligopoly theory," Journal of Economics and Business, Elsevier, Elsevier, vol. 36(2), pages 243-249, May.
    13. Green, Edward J & Porter, Robert H, 1984. "Noncooperative Collusion under Imperfect Price Information," Econometrica, Econometric Society, Econometric Society, vol. 52(1), pages 87-100, January.
    14. Evans, Robert & Maskin, Eric, 1989. "Efficient renegotiation--proof equilibria in repeated games," Games and Economic Behavior, Elsevier, Elsevier, vol. 1(4), pages 361-369, December.
    15. Douglas Bernheim, B. & Ray, Debraj, 1989. "Collective dynamic consistency in repeated games," Games and Economic Behavior, Elsevier, Elsevier, vol. 1(4), pages 295-326, December.
    16. Drew Fudenberg & David K. Levine & Eric Maskin, 1994. "The Folk Theorem with Imperfect Public Information," Levine's Working Paper Archive 394, David K. Levine.
    17. David G. Pearce, 1987. "Renegotiation-Proof Equilibria: Collective Rationality and Intertemporal Cooperation," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 855, Cowles Foundation for Research in Economics, Yale University.
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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, 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, Elsevier, vol. 37(C), pages 187-214.

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