On the Competitive Effect of Multimarket Contact
50 Pages Posted: 29 Jul 2012 Last revised: 22 Jul 2017
Date Written: June 11, 2017
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: Suggested Citation