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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 104:
Multimarket Contact, Concavity, and Collusion: on Extremal Equilibria of Interdependent Supergames

Giancarlo Spagnolo

Abstract: 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.

Keywords: Repeated games; oligopoly; collusion; cooperation; conglomeration; mergers.; (follow links to similar papers)

JEL-Codes: C72; D43; L13; L21; (follow links to similar papers)

25 pages, February 1996, Revised November 30, 1998

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This paper is forthcoming as:
Spagnolo, Giancarlo, 'On Interdependent Supergames: Multimarket Contact, Concavity and Collusion', Journal of Economic Theory.



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