Credible collusion in multimarket oligopoly

Timothy L. Sorenson
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Timothy L. Sorenson: Department of Economics, Albers School of Business and Economics, Seattle University, Washington, USA, Postal: Department of Economics, Albers School of Business and Economics, Seattle University, Washington, USA

Managerial and Decision Economics, 2007, vol. 28, issue 2, pages 115-128

Abstract: This article refines an established explanation of how multimarket contact facilitates collusion when firms enjoy reciprocal advantages across markets: When there are reciprocal asymmetries between firms, multimarket contact allows them not only to develop spheres of influence, but also to implement attractively simple strategies that are subgame perfect and weakly renegotiation proof. Hence, collusive equilibria are supported by fully credible punishments. A significant implication is, multimarket contact involving reciprocal differences between firms may be more facilitating to their cooperative efforts than multimarket contact based on other factors. The article discusses existing empirical work as it relates to this implication. Copyright © 2007 John Wiley & Sons, Ltd.

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