Markets Linked by Rising Marginal Costs: Implications for Multimarket Contact, Recoupment, and Retaliatory Entry

Markets Linked by Rising Marginal Costs: Implications for Multimarket Contact, Recoupment, and... This paper studies the effects on prices and welfare of multimarket contact when firms serve multiple markets from a single facility with rising marginal costs. Here a link is created between markets, even with independent demands: greater output in one market leads to a higher marginal cost and lower output in other markets; and multimarket contact can indeed lower welfare. Variations of the model can explain two other puzzling phenomena: “recoupment” – lower prices in one market “paid for” by higher prices in other markets; and “retaliatory entry” – the credible threat to enter a rival’s market if it enters yours. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Markets Linked by Rising Marginal Costs: Implications for Multimarket Contact, Recoupment, and Retaliatory Entry

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Publisher
Springer US
Copyright
Copyright © 2007 by Springer Science+Business Media, LLC
Subject
Economics; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-007-9143-y
Publisher site
See Article on Publisher Site

Abstract

This paper studies the effects on prices and welfare of multimarket contact when firms serve multiple markets from a single facility with rising marginal costs. Here a link is created between markets, even with independent demands: greater output in one market leads to a higher marginal cost and lower output in other markets; and multimarket contact can indeed lower welfare. Variations of the model can explain two other puzzling phenomena: “recoupment” – lower prices in one market “paid for” by higher prices in other markets; and “retaliatory entry” – the credible threat to enter a rival’s market if it enters yours.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Sep 14, 2007

References

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