Multimarket Contact, Imperfect Monitoring, and Implicit Collusion
AbstractThis 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 InfoPaper provided by CIRJE, Faculty of Economics, University of Tokyo in its series CIRJE F-Series with number CIRJE-F-24.
Length: 24 pages
Date of creation: Oct 1998
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Other versions of this item:
- Matsushima, Hitoshi, 2001. "Multimarket Contact, Imperfect Monitoring, and Implicit Collusion," Journal of Economic Theory, Elsevier, vol. 98(1), pages 158-178, May.
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