Multimarket Contact, Imperfect Monitoring, and Implicit Collusion

This paper presents a theoretical foundation to the possibility that multimarket contact enhances firms' ability to sustain implicit collusion. When firms operate in a single market and cannot perfectly monitor their opponents' choices, it is impossible to achieve efficiency even if these firms have a long-term strategic relationship. We show that when firms encounter each other in a number of distinct markets and the extent of this market contact is large, efficiency can be approximately sustained by a perfect equilibrium. This efficiency with imperfect monitoring holds under almost the same condition on the discount factor as with perfect monitoring. Journal of Economic Literature Classification Numbers: C70, C72, C73, D43, L11, L22, L41. 2001 Academic Press