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Multimarket Contact, Concavity, and Collusion: on Extremal Equilibria of Interdependent Supergames

  • Spagnolo, Giancarlo

    (Department of Economics)

Following Bernheim and Whinston (1990), this paper addresses the effects of multimarket contact on firms ability to collude in repeated oligopolies. Managerial incentives, taxation, and financial market imperfections tend to make firms objective function strictly concave in profits and market games interdependent: firms payoffs in each market depend on how they are doing in others. In this case multimarket contact always facilitates collusion, and may make it sustainable in all markets even when otherwise it would not be sustainable in any. The effects of conglomeration and horizontal mergers are discussed. The results extend to non-oligopolistic supergames with objective functions submodular in material payoffs.

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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 104.

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Length: 25 pages
Date of creation: Feb 1996
Date of revision: 29 Apr 1998
Publication status: Forthcoming in Journal of Economic Theory, 1999, pages 127-139.
Handle: RePEc:hhs:hastef:0104
Contact details of provider: Postal: The Economic Research Institute, Stockholm School of Economics, P.O. Box 6501, 113 83 Stockholm, Sweden
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