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On the competitive effects of multimarket contact

Guy Arie, Sarit Markovich and Mauricio Varela

European Economic Review, 2017, vol. 100, issue C, 116-142

Abstract: Changes in the extent of multi-market contact (MMC) between firms often affect market outcomes – quantities and prices. We show that a strategic but purely competitive effect of changes in MMC can change the quantity provided in a market by a firm by as much as 50%, and the prices a firm sets by as much as 20%. This may have important welfare implications, specifically with regards to horizontal mergers. Studying mergers that span several markets, we show that a myopic merger policy may thwart a surplus-increasing merger wave. The analysis does not rely on any tacit or explicit collusive behavior by the firms.

Keywords: Multimarket contact; Horizontal mergers; Strategic complements; Strategic substitutes (search for similar items in EconPapers)
JEL-codes: D40 L13 L41 (search for similar items in EconPapers)
Date: 2017
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