Multimarket Contact and Collusive Behavior

Abstract

Traditional analyses of industrial behavior typically link the exercise of market power in an industry to internal features such as demand conditions, concentration, and barriers-to-entry. Nevertheless, some economists have remained concerned that external factors, such as contact across markets, may also play a significant role in determining the level of competitiveness in any particular industry. In this article, we examine the effect of multimarket contact on the degree of cooperation that firms can sustain in settings of repeated competition. We isolate conditions under which multimarket contact facilitates collusion and show that these collusive gains are achieved through modes of behavior that have been identified in previous empirical studies of multimarket firms.