The Theory of Multimarket Competition: A Synthesis and Implications for Marketing Strategy

Abstract

Multimarket competition refers to competitive situations in which the same firms compete against each other in multiple markets. The theory of multimarket competition suggests that the phenomenon of mutual forbearance may reduce the market-level intensity of competition between two firms when the multimarket contact between them (the number of markets in which they compete) increases. Mutual forbearance, a form of tacit collusion in which firms avoid competitive attacks against those rivals they meet in multiple markets, is proposed to occur because multi-market competition increases the familiarity between firms and their ability to deter each other. In this article, the authors examine how multimarket contact increases familiarity and deterrence. Furthermore, they provide an extension of the theory of multimarket competition by developing a conceptual model that identifies competitive and market factors that moderate the relationship between the degree of multimarket contact and the intensity of competition. The authors also examine the implications of multimarket competition for marketing strategy in the context of two marketing strategy issues: product line rivalry and entry strategy.