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Multimarket Contact, Bundling and Collusive Behavior - Cemfi

Multimarket Contact, Bundling and Collusive Behavior - Cemfi

Multimarket Contact, Bundling and Collusive Behavior -

Multimarket Contact, Bundlingand Collusive BehaviorJuan-Pablo Montero and Esperanza Johnson ∗June 20, 2012AbstractWe study the static and dynamic implications of non-linear pricing schemes (i.e.,bundling) for otherwise unrelated products but for multimarket contact. Bundlingis always present in competition but unlikely in a cartel agreement. Although itbrings extra profits to the cartel –sometimes charging a premium rather than adiscount for the bundle–, bundling makes deviation from the agreement far moreattractive. Depending on the correlation of consumers’ preferences, this deviationeffect is either reinforced with milder punishments (for positive correlations) orpartially offset with harsher punishments (for negative correlations). The deviationeffect is so strong that it even dominates a zero-profit (pure-bundling) punishment.Key words: multimarket contact, conglomerate merger, bundling, collusionJEL classification: L13, L411 IntroductionMore often we see firms in seemingly unrelated markets either merging or forming allianceswhich, among other things, allows them to bundle their products. Grocery storesin different countries, for example, offer their customers discount vouchers (fuelperks!)that can be redeemed when purchasing fuel at a particular gas station chain. In somecases the grocery store and the gas station engaged in this type of cross-market discountsareownedbythesameconglomerateorparentcompanybutinotherstheyoperateunder∗ Both authors (jmontero@uc.cl & esperanzajohnson@gmail.com) are with the Department of Economicsof the Pontificia Universidad Católica de Chile (PUC-Chile). We thank Natalia Fabra, KenHendricks, Eric Rasmusen, David Ulph, Felipe Zurita and seminar participants at Aalto University-Helsinki, Carlos III-Madrid, IO Workshop-Zapallar (2010), IIOS Meeting-Boston (2011), PUC-Chile,University of Chile (CEA), University of Miami and University of St Andrews for comments and discussions;and Enrique Ide for research assistance. Montero also thanks financial support from Fondecyt(Grant No. 1095209) and Instituto Sistemas Complejos de Ingeniería ISCI (Milenio P05-004-F & BasalFBO-16).1

Multimarket Contact, Bundling and Collusive Behavior - Cemfi
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