Multimarket contact, collusion and the internal structure of firms
Multimarket contact has an impact on the sustainability of collusive outcomes, whenever firms or markets differ from each other or scope effects are present. An implicit assumption made in the literature dealing with multimarket contact and collusion in infinitely repeated games is the existence of a single decision taker. Nevertheless, big firms often hand over responsibility for single markets to managers, who maximize divisional profits. If markets were independent from each other, the impact of multimarket contact would vanish. In this paper, the consequences of divisionalization on the sustainability of are analyzed in a two-firm two-market framework with intra-firm scope effects. Within a divisionalized structure, each manager chooses the output of his market to maximize long-term divisional profits. Managers do not coordinate their collusion or deviation decisions. It is shown, that - dependent on the kind of scope effects - the lack of coordination between divisions may increase or decrease the collusive power of firms. If firms face economies of scope, collusion is easier to sustain within a divisionalized structure, whereas firms facing diseconomies of scope prefer centralized decision making and coordination of collusion across markets. Furthermore, the impact of the compensation scheme for managers is explored: Managers should be made to internalize negative spillover effects, but should be made to neglect positive spillovers.
|Date of creation:||1999|
|Date of revision:|
|Contact details of provider:|| Postal: Reichpietschufer 50, 10785 Berlin, Germany|
Phone: ++49 - 30 - 25491 - 0
Fax: ++49 - 30 - 25491 - 684
Web page: http://www.wzb.eu/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dixon, Huw David, 1992.
"Inefficient Diversification in Multimarket Oligopoly with Diseconomies of Scope,"
CEPR Discussion Papers
732, C.E.P.R. Discussion Papers.
- Dixon, Huw David, 1994. "Inefficient Diversification in Multi-market Oligopoly with Diseconomies of Scope," Economica, London School of Economics and Political Science, vol. 61(242), pages 213-19, May.
- Teece, David J., 1982. "Towards an economic theory of the multiproduct firm," Journal of Economic Behavior & Organization, Elsevier, vol. 3(1), pages 39-63, March.
When requesting a correction, please mention this item's handle: RePEc:zbw:wzbmdy:fsiv9925. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.