I am grateful to Antonio Cabrales and Andreu Mas-Colell for careful supervision. I thank Fabrizio Germano, Esther Hauk, Sjaak Hurkens, Xavier Martinez-Giralt, Santanu Roy, Karl Schlag, Joel Shapiro, Xavier Vives, and Simon Weidenholzer for useful comments and discussions. All remaining errors are my own.
Is the Competitor of my Competitor also my Competitor?
Article first published online: 15 OCT 2012
© 2012 Wiley Periodicals, Inc.
Journal of Economics & Management Strategy
Volume 21, Issue 4, pages 927–963, Winter 2012
How to Cite
Shelegia, S. (2012), Is the Competitor of my Competitor also my Competitor?. Journal of Economics & Management Strategy, 21: 927–963. doi: 10.1111/j.1530-9134.2012.00353.x
- Issue published online: 15 OCT 2012
- Article first published online: 15 OCT 2012
This paper presents several results on multimarket competition. First, whenever a firm faces multimarket competitors that sell goods in markets to which the firm itself has no access, the firm gains a strong incentive to expand production in its own market(s). In the capacity choice model, such a firm builds larger than Cournot capacity and pushes its competitors towards other markets. Consumers always benefit from multimarket competition. In asymmetric market structures, some firms may also benefit from multimarket arrangements, but in symmetric ones, all firms are necessarily harmed by it. Second, the intensification of indirect competition is not necessarily bad for the firm. It may be the case that, the more competitors its competitors have, the higher the firm’s profit. Finally, this model also has a multiproduct interpretation which suggests that a merger of single-product firms may be beneficial or harmful from a social welfare perspective, depending on whether the new entity will compete with several single-product firms or another multiproduct one.