On Interdependent Supergames: Multimarket Contact, Concavity, and Collusion
This paper addresses the effects of multimarket contact on firms� ability to collude. Real world imperfections tend to makes firms� objective function strictly concave and market supergames �interdependent�: firms� payoffs in each market depend on how they are doing in others. Then, multimarket contact always facilitates collusion. It may even make it sustainable in all markets when otherwise it would not be sustainable in any. The effects of conglomeration are discussed. �Multi-game contact� is shown to facilitate cooperation in non-oligopolistic supergames as long as agents� objectives function is submodular in material payoffs.