Geographical and Multi-Product Linkages of Markets: Impact on Firm Equilibrium Interactions (Some Evidence from the European Car Market)

Abstract:     
This paper aims to study geographical and multi-product linkages of markets (multiple market presence) and firm behaviour interdependence as a result of such linkages existence. In particular, it attempts to answer whether the multimarket linkages lead to more cooperative behaviour among the firms, which results in higher prices and profits, and whether the degree of collusive/cooperative behaviour varies across markets. These issues are investigated within a structural oligopoly model for differentiated products for the European automobile market on the basis of the aggregate product-level data for 1970-1999. The results of the study reveal weak (quantitative) effect of multimarket contact on market conduct/pricing in the European car market as well as provide some evidence on the redistribution of the market power from the more collusive to the more competitive markets due to multimarket contact.

Number of Pages in PDF File: 65

Keywords: multimarket contact, collusion, automobile industry, test for non-nested hypothesis, menu test, structural oligopoly models, conjectural variations

JEL Classification: L13, L25, L62

working papers series