Multimarket Exit, Strategic Merger, and Collusion

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