On the competitive effects of multimarket contact

Guy Arie, Sarit Markovich, Mauricio Varela

Research output: Contribution to journalArticle

2 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)116-142
Number of pages27
JournalEuropean Economic Review
Volume100
DOIs
StatePublished - Nov 2017

Keywords

  • Horizontal mergers
  • Multimarket contact
  • Strategic complements
  • Strategic substitutes

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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