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 language||English (US)|
|Publisher||Social Science Research Network (SSRN)|
|Number of pages||56|
|State||Published - Apr 15 2015|