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Multimarket Contact in Vertically Related Markets

Author

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  • Talat S. Genc

    () (Department of Economics,University of Guelph)

  • Sencer Ecer

    () (Department of Economics, Istanbul Technical University)

Abstract

We analyze collusion in two comparable market structures. In the first market structure only one firm is vertically integrated; there is one more independent firm in the upstream industry and another independent firm in the downstream industry. In the second market structure, there are only two vertically integrated firms that can trade among themselves in the intermediate good market. The second market structure mimics markets like the California gasoline market where firms vertically integrated through refinery, and retail markets. We rank these two market structures in terms of ease of collusion and show that while under some circumstances collusion is not possible in the market with one vertically integrated firm, collusion is possible in the market structure with two vertically integrated firms. We conclude that vertical (multimarket) contact facilitates collusion and vertical mergers suspected to lead to subsequent vertical mergers in an industry should receive higher antitrust scrutiny relative to single isolated vertical mergers.

Suggested Citation

  • Talat S. Genc & Sencer Ecer, 2010. "Multimarket Contact in Vertically Related Markets," Working Papers 1007, University of Guelph, Department of Economics and Finance.
  • Handle: RePEc:gue:guelph:2010-08.
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    File URL: http://www.uoguelph.ca/economics/repec/workingpapers/2010/2010-08.pdf
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    Keywords

    Multimarket; collusion; vertical integration; gasoline markets;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities

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