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Documento de trabajo

Multimarket Contact, Bundling and Collusive Behavior

  • person Juan-Pablo Montero

    Esperanza Johnson

  • class Documento de Trabajo IE-PUC, N° 420, 2012

Abstract: We study the static and dynamic implications of non-linear pricing schemes (i.e.,bundling) for otherwise unrelated products but for multimarket contact. Bundling is always present in competition but unlikely in a cartel agreement. Although it brings extra profits to the cartel –sometimes charging a premium rather than a discount for the bundle–, bundling makes deviation from the agreement far more attractive. Depending on the correlation of consumers’ preferences, this deviation effect is either reinforced with milder punishments (for positive correlations) or partially offset with harsher punishments (for negative correlations). The deviation effect is so strong that it even dominates a zero-profit (pure-bundling) punishment.

Keywords: multimarket contact, conglomerate merger, bundling, collusion
JEL Code: L13, L41