Multimarket Contact Under Demand Fluctuations: A Limit Result
17 Pages Posted: 8 Apr 2013
Date Written: January 27, 2013
The present paper studies repeated oligopoly where the firms compete with price in multiple markets. The markets are subject to independent, stochastic fluctuations in demands. The literature points out that while the demand fluctuations generally hinder collusion, the multimarket contact sometimes facilitates it. We show that on an intermediate range of discount factors where only partial collusion is possible under a single market, the difference between the profit under full collusion and the maximum equilibrium profit converges to zero, if the number of markets goes to infinity. Thus the collusion-deterrence effects of fluctuated demands completely vanish in the limit.
Keywords: collusion, demand fluctuations, multimarket contact, repeated games
JEL Classification: C72, C73, D43, L13
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