Multimarket Exit, Strategic Merger, and Collusion
Journal of Institutional and Theoretical Economics (JITE), 173(3): 395-418 (lead article).
26 Pages Posted: 3 Sep 2016 Last revised: 5 Jul 2017
Date Written: September 1, 2016
Abstract
We study the duopoly exit equilibrium in a multimarket environment with declining demand, and investigate the roles of strategic merger, agency cost, and collusion in a multimarket exit game.Cross-market spillovers with endogenous duration and the strategic merger of outside firms can serve as sources of commitment in a multipoint war of attrition, and might help large firms successfully force their smaller rivals out. Agency cost can be beneficial in bolstering strategic commitment in declining markets. Under certain conditions, multimarket contact might facilitate collusion in a multimarket exit game where firms yield a market to each other reciprocally.
Keywords: Exit, Multimarket, War of Attrition, Strategic Merger, Agency Cost, Collusion
JEL Classification: L00, L13, D21
Suggested Citation: Suggested Citation