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. (C) 2001 Academic Press.