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Multimarket Contact Under Demand Fluctuations: A Limit Result

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  • Tadashi Sekiguchi

Abstract

The present paper studies repeated oligopoly where the firms compete with price in multiple markets. The markets are subject to independent, stochastic fluctuations in demands. The literature points out that while the demand fluctuations generally hinder collusion, the multimarket contact sometimes facilitates it. We show that on an intermediate range of discount factors where only partial collusion is possible under a single market, the difference between the profit under full collusion and the maximum equilibrium profit converges to zero, if the number of markets goes to infinity. Thus the collusion-deterrence effects of fluctuated demands completely vanish in the limit.

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  • Tadashi Sekiguchi, 2013. "Multimarket Contact Under Demand Fluctuations: A Limit Result," Working Papers e052, Tokyo Center for Economic Research.
    • Handle: RePEc:tcr:wpaper:e52
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    References listed on IDEAS

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    1. Matsushima, Hitoshi, 2001. "Multimarket Contact, Imperfect Monitoring, and Implicit Collusion," Journal of Economic Theory, Elsevier, vol. 98(1), pages 158-178, May.
    2. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
    3. Kobayashi, Hajime & Ohta, Katsunori, 2012. "Optimal collusion under imperfect monitoring in multimarket contact," Games and Economic Behavior, Elsevier, vol. 76(2), pages 636-647.
    4. B. Douglas Bernheim & Michael D. Whinston, 1990. "Multimarket Contact and Collusive Behavior," RAND Journal of Economics, The RAND Corporation, vol. 21(1), pages 1-26, Spring.
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    Cited by:

    1. Tadashi Sekiguchi, 2015. "Multimarket contact under demand fluctuations," International Journal of Game Theory, Springer;Game Theory Society, vol. 44(4), pages 1033-1048, November.

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