The Competitive Effect of Multimarket Contact

This paper shows that a strategic but purely competitive e ect of multi-market contact (MMC) can change the quantity provided by a multimarket rm by as much as 50%. Multi-market rms serve some but not all of their rivals' markets. As a result, a rm's reaction to rivals' actions in one market depends on the conditions in other markets served by the rm. Moreover, a rm's move in one market may a ect equilibrium quantities in markets where the rm is not active. We show that empirical ndings that were previously interpreted as evidence for anti-competitive behavior caused by MMC may in fact be a result of the competitive e ect of MMC. Interestingly, the competitive e ect of MMC can also cause international rms to appear more productive than local rms. The model is supported by novel empirical evidence from the domestic US airline industry.