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On Interdependent Supergames: Multimarket Contact, Concavity, and Collusion

Following Bernheim and Whinston (1990), this paper addresses the effects of multimarket contact on firms’ ability to collude. Real world imperfections tend to make firms’ objective function strictly concave and market supergames “interdependent”: firms’ payoffs in each market depend on how they are doing in others. Then, multimarket contact always facilitates collusion. It may even make collusion sustainable in all markets when otherwise it would not be sustainable in any. The effects of conglomeration are discussed. “Multigame contact” is shown to facilitate cooperation in supergames other than oligopolies as long as agents’ objective function is submodular in material payoffs.

Published in Journal of Economic Theory 89/1 (November 1999), pages 127-139


Date: November 1999
Author(s): Giancarlo Spagnolo
Tag(s): Research Papers , Cartels, Competition Economics