Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

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

Giancarlo Spagnolo
Additional contact information
Giancarlo Spagnolo: Department of Economics, Postal: Stockholm School of Economics, Box 6501, S-113 83 Stockholm, Sweden.

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.

JEL-codes: C72; D43; L13; L21

25 pages, First version: February 1996. Revised: November 30, 1998. Earlier revisions: April 29, 1998.

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