On the Stability of Multimarket Collusion in Price-Setting Supergames

Abstract

In this paper we examine how trade liberalization affects collusive stability in the context of multimarket interactions. The model we consider is a segmented-markets duopoly in which price-setting firms pool their incentive constraints across markets to sustain their most collusive outcome. We find that, when goods are very close substitutes and trade costs are sufficiently high, trade liberalization facilitates collusion. Exactly the opposite is true if, for any given degree of product substitutability, trade costs are sufficiently low. We also study the dependence of multimarket collusion on product differentiation.

Keywords: Multimarket cartels, trade costs, product differentiation

JEL Classification: D43, L12, L13, L41, F10, F12, F13, F15, F42