Business Intelligence

Multimarket Contact Effect On Collusion Through Diversification

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Executive Summary

This paper establishes the potential positive relationship between MultiMarket Contact (MMC) and sustainable collusive profits under demand fluctuations. In particular, the author focuses on the correlation structure between demand shocks over multiple markets and shows how it can lead to a positive link between collusive profit and MMC. Simple theoretical models show that, regardless of whether demand shocks are observable or not, MMC may improve collusive profits through diversification of demand shocks over overlapping markets. If firms meet in multiple markets and link those markets in the sense that deviation in any market will trigger simultaneous retaliations in every market, then a cheating firm will optimally deviate in every market.

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