Market Power of Multiproduct Firms and Price Coordination in the Industry
Pp. 58-85 (28)
Wassim Benhassine, Eric Giraud-Heraud and Abdelhakim Hammoudi
The majority of industrial economics works deals with competition between
mono-product firms. However, the hypothesis of mono-product competition is a very
poor representation of the observed reality in the industry. In this chapter, we revisit two
classical examples of merger regulation. We show how the analysis of multi-store
competition may be complex and may require a more sophisticated modeling than the
classical models used in mono-store framework. We provide notably, an appropriable
tool to discuss the power of a multi-store firm to stimulate price co-ordination in the
industry. We use general models to derive specific price equilibrium applying to
collusive price behavior between multi-store firms and mono-store firms. We show how
the multi-store firm may find strategically advantageous to base its pricing policy on the
degree of substitutability of its product line with respect to those offered by its
competing rivals. Finally, we show that the decisive factor in establishing multi-store
initiated cartelization may be (i) the number of firms included in the cartelization and (ii)
the location of the independent store relative to those owned by the dominant firm. These
two elements can indeed be as decisive as the total number of players in the market.
Bertrand-Nash equilibrium, cartelization, circular model,
collusion feasibility, location, merger regulation, multi-product firms,
multi-store firms, outsiders, price coordination.
INRA-ALISS (Alimentation et Sciences Sociales), Institut National de la Recherche Agronomique, 65 Bd Brandebourg, 94205, Ivry sur Seine, France.