On the Competitive Effect of Multimarket Contact

50 Pages Posted: 29 Jul 2012 Last revised: 22 Jul 2017

See all articles by Guy Arie

Guy Arie

University of Rochester - Simon Business School

Sarit Markovich

Kellogg School of Management

Mauricio J. Varela

University of Arizona

Date Written: June 11, 2017

Abstract

Changes in the extent of multi-market contact (MMC) between firms often affect market outcomes – quantities and prices. 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. The analysis does not rely on any tacit or explicit collusive behavior by the firms.

Keywords: Multi-market contact; horizontal mergers; multi-market competition

JEL Classification: D24, D43, L13, L93

Suggested Citation

Arie, Guy and Markovich, Sarit and Varela, Mauricio J., On the Competitive Effect of Multimarket Contact (June 11, 2017). Simon School Working Paper No. FR 12-12. Available at SSRN: https://ssrn.com/abstract=2118822 or http://dx.doi.org/10.2139/ssrn.2118822

Guy Arie (Contact Author)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
United States

Sarit Markovich

Kellogg School of Management ( email )

2211 Campus Drive
Kellogg
Evanston, IL IL 60208
United States

Mauricio J. Varela

University of Arizona ( email )

Department of History
Tucson, AZ 85721
United States

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