Collusion in horizontally connected markets: Multimarket producers as conduits for learning

Abstract

Two duopoly market structures are experimentally constructed. Payoff tables describe basic conditions in an X market and a Y market. In one market structure two rivals choose X quantities and a different set of rivals choose Y quantities. These markets develop equilibria independently. A second market structure creates a multiproduct producer that chooses both an X and Y output. Separate X and Y duopolists are rivals to the multiproduct producer. The multiproduct/multimarket rival creates a horizontal connection for the X and Y markets. Subjects choose outputs from payoff tables for at least thirty five periods. Compared to the independent duopolies, the horizontal connection raises outputs in the X market and lowers outputs in the Y market. These impacts are statistically significant. We find Granger causality for output choices moving from X to Y and from Y to X in the connected markets; however learning that moves through the horizontal connection is less influential than learning within the market. Further testing shows that competitive learning travels better than cooperative learning through the multimarket firm.

Citation

Phillips, O.R. and Mason, C.F. (2001), "Collusion in horizontally connected markets: Multimarket producers as conduits for learning", Baum, J.A.C. and Greve, H.R. (Ed.) Multiunit Organization and Multimarket Strategy (Advances in Strategic Management, Vol. 18), Emerald Group Publishing Limited, Leeds, pp. 205-227. https://doi.org/10.1016/S0742-3322(01)18008-3