The Competitive Effect of Multimarket Contact

Guy Arie, Sarit Markovich, Mauricio Varela

Research output: Working paper

Abstract

Changes in the extent of multi-market contact (MMC) between firms often affect market outcomes - quantities and prices. This paper challenges the standard economic interpretation of this phenomenon as an indication of tacit collusion. 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.
Original languageEnglish (US)
PublisherSocial Science Research Network (SSRN)
Number of pages56
StatePublished - Apr 15 2015

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    Arie, G., Markovich, S., & Varela, M. (2015). The Competitive Effect of Multimarket Contact. Social Science Research Network (SSRN). http://ssrn.com/abstract=2118822