Multimarket contact, collusion and the internal structure of firms

Silke Neubauer

No FS IV 99-25, Discussion Papers, Research Unit: Market Dynamics from WZB Berlin Social Science Center

Abstract: Multimarket contact has an impact on the sustainability of collusive outcomes, whenever firms or markets differ from each other or scope effects are present. An implicit assumption made in the literature dealing with multimarket contact and collusion in infinitely repeated games is the existence of a single decision taker. Nevertheless, big firms often hand over responsibility for single markets to managers, who maximize divisional profits. If markets were independent from each other, the impact of multimarket contact would vanish. In this paper, the consequences of divisionalization on the sustainability of are analyzed in a two-firm two-market framework with intra-firm scope effects. Within a divisionalized structure, each manager chooses the output of his market to maximize long-term divisional profits. Managers do not coordinate their collusion or deviation decisions. It is shown, that - dependent on the kind of scope effects - the lack of coordination between divisions may increase or decrease the collusive power of firms. If firms face economies of scope, collusion is easier to sustain within a divisionalized structure, whereas firms facing diseconomies of scope prefer centralized decision making and coordination of collusion across markets. Furthermore, the impact of the compensation scheme for managers is explored: Managers should be made to internalize negative spillover effects, but should be made to neglect positive spillovers.

Date: 1999
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/51198/1/312699492.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:wzbmdy:fsiv9925

Access Statistics for this paper

More papers in Discussion Papers, Research Unit: Market Dynamics from WZB Berlin Social Science Center Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().