Multimarket Contact, Imperfect Monitoring, and Implicit Collusion

Hitoshi Matsushima

No CIRJE-F-24, CIRJE F-Series from CIRJE, Faculty of Economics, University of Tokyo

Abstract: This paper presents a theoretical foundation of the possibility that multimarket contact enhances firms' abilities to sustain implicit collusion. When firms operate in a single market and cannot perfectly monitor the opponents' choices of supply, it is impossible to achieve efficiency among these firms in a self-enforcing way, even though these firms have the long-term strategic relationship. By using models of infinitely repeated game with discounting, we shows that when firms encounter each other in a number of distinct markets and the degree of multimarket contact is large enough, efficiency can be approximately sustained by a subgame perfect equilibrium. This efficiency theorem in the imperfect monitoring case holds under almost the same condition on the discount factor as the perfect monitoring case.

Pages: 24 pages
Date: 1998-10
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Journal Article: Multimarket Contact, Imperfect Monitoring, and Implicit Collusion (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:tky:fseres:98cf24

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