Multimarket Contact Research Articles

Ownership as a Bundle of Rights: Antecedents of the Wedge Between Control and Cash-Flow Rights Within Firms

In this paper, we examine the antecedents of ownership rights within multiunit firms, focusing on the wedge between the control rights and cash-flow rights that parent companies hold over their subsidiaries. We argue that a key antecedent of a parent’s ownership rights in a subsidiary is the extent of the subsidiary’s interdependencies with the firm. Exploring two such interdependencies, we hypothesize that (1) the wedge between parents’ control and cash-flow rights is smaller for subsidiaries that are more closely related to the firm and (2) there is a U-shaped relationship between the extent of a firm’s multimarket contact in an industry and the wedge between parents’ control rights and cash-flow rights for subsidiaries that operate in that industry. We tested our predictions and found evidence supporting the first hypothesis and mixed results for the second in a sample of subsidiaries newly added to French manufacturing firms through acquisitions or de novo creations. In supplementary analyses, we also found that a subsidiary’s interdependencies are also associated with its hierarchical position within the firm’s formal authority structure. Supplemental Material: The online appendix is available at https://doi.org/10.1287/stsc.2022.0114 .

Multi-market contact, tacit collusion, and decentralized managerial decision-making

Competition in a market may be weaker if the same firms also compete against each other in other markets. Conventional explanations for this mutual forbearance depend on centralized firm decision-making, which permits the threat of concerted retaliation across many markets at once. However, in large firms, market-level decisions may be delegated to managers. We show that multi-market contact can still promote tacit collusion in this case, even though each manager cares only about profit in her own market. In our model, the main linkage between markets is informational: in collusive equilibria of a repeated game with noisy monitoring, outcomes in a second market may be evidence about a competitor's incentives in a first market. The model expands the antitrust concerns about multi-market contact to situations in which independent branch-level decision-making appears to be occurring.

Run, not walk: advanced red queen effect and mutual forbearance effect in multimarket contact

PurposeThis study explores the evolutionary relationship between multimarket contact (MMC) and competitive actions among multinational corporations (MNCs). It aims to enhance the understanding of international market competition by incorporating insights into dynamic competition and parent–subsidiary relationships.Design/methodology/approachA structured content analysis was used to identify the competitive actions of global shipping liners. The dataset includes 8,204 actions identified across nine global arenas. Data were collected from 6,553 monthly news articles on Alphaliner. The period covered is from January 1, 2015, to June 30, 2023.FindingsThe results indicate that a higher degree of MMC leads to greater competitive aggressiveness, supporting the combination of mutual forbearance and the Red Queen effect. Additionally, market importance triggers the mutual forbearance effect, whereas competitive rivalry is weaker for overlapping cross-market contacts. Furthermore, local competitive intensity increases MNCs' contact and echoes the Red Queen effect, especially for subsidiaries facing increasing pressure from local responsiveness.Research limitations/implicationsLimitations include reliance on Alphaliner, potential inaccuracies from proxy variables, and unmeasured headquarters–subsidiary interactions. Future research should explore other industries and extend the study period for broader applicability and generalization.Practical implicationsBy interlacing mutual forbearance with the Red Queen effect within a coopetition framework, managers can devise strategies to balance competition and collaboration, thereby ensuring long-term viability and growth in global markets.Originality/valueThis study extends the concept of MMC to the context of global shipping liners, a previously underexplored sector. Unlike earlier research, this study empirically examines MMC dynamics globally and integrates mutual forbearance and the Red Queen effect.

Multimarket contact and price discrimination

Theoretical and empirical studies have demonstrated that multimarket contact facilitates tacit collusion and higher prices. In this study, we examine how multimarket contact influences firms' use of price discrimination. First, we demonstrate theoretically that additional coordination can lead firms to increase or reduce price discrimination, depending on underlying market factors. Next, we empirically investigate price differentials in the U.S. airline industry, employing a new instrumental variables approach to isolate the effects of multimarket contact. We find that multimarket contact results in larger differences in fare levels amongst consumers purchasing higher-priced tickets but smaller fare differences amongst those purchasing lower-priced tickets. Consistent with our theoretical model, multimarket contact more strongly influences fares on less concentrated routes. The findings emphasize the importance of accounting for cross-market or network structure as well as within-market structure when modeling market conduct and performance or when evaluating potential merger effects.

Multimarket contact between partners and strategic alliance survival

AbstractResearch SummaryThe impact of multimarket contact (MMC) between partners on strategic alliance survival is unclear, even though recent studies have suggested that MMC increases the likelihood of alliance formation. Our study investigates this issue by integrating two mechanisms occurring between multimarket firms: mutual forbearance and technological resource imitation. We argue that MMC between partners deters opportunism in alliances via mutual forbearance, resulting in a positive effect on the likelihood of strategic alliance survival. We also suggest that the positive effect is weakened in two settings with higher risks of technological resource imitation: technological overlap between partners and the presence of R&D activities in an alliance. Evidence from strategic alliances in the global semiconductor industry supports these conclusions.Managerial SummaryRecent research has shown that firms encountering each other in multiple markets are more likely to form strategic alliances, but it is unclear whether these firms are likely to stick together. Our theory suggests that the threat of broad retaliation limits opportunism and increases the likelihood of alliance survival when partners encounter each other in multiple markets. Nonetheless, in settings where partners have similar technologies, or in alliances involving R&D activities, their ability and incentives to copy each other's technological resources offsets the positive effect of multimarket contact on alliance survival. We study strategic alliances in the global semiconductor industry and find evidence consistent with these arguments.

Influence of multimarket contact on product line configuration decisions

ABSTRACT Multimarket competition with multiple firms is crucial for marketers in product decisions. Despite its importance in marketing decisions, empirical research on product line configurations in multimarket contact (MMC) is limited. Utilizing panel data from the fast-moving consumer goods from four geographic zones encompassing 80,000 households in urban and rural markets, the authors empirically confirm that as MMC with rivals increases, focal firms tend to become more aggressive by adjusting their product line configurations. Moreover, when the focal firm holds a high market share and resource centrality in the focal market, it exhibits deterrence by maintaining the status quo. Similarly, when examining the interaction effect of MMC with focal market profitability, we observe that the focal firm becomes aggressive and adjusts its configuration. This study extends current research on product line configuration decisions, especially when the boundaries of physical markets are becoming increasingly blurred with the rise of e-commerce and hyperlocal models increasing multimarket contacts.

Media Competition, Multimarket Contact, and Viewpoint Diversity

Media Competition, Multimarket Contact, and Viewpoint Diversity

Does IT Enable Collusion or Competition: Examining the Effects of IT on Service Pricing in Multimarket Multihospital Systems

In the U.S., multihospital systems (MHSs) charge significantly higher prices for hospital services than stand-alone hospitals. Rivalry restraint theory suggests that MHS with multimarket contact (MMC) can tacitly collude and mutually forebear from price competition to keep their prices above competitive levels. We posit that the success of such MMC-induced rivalry restraints (the truce) is affected by two conflicting roles of IT at the corporate level and market unit levels, respectively. The corporate parent seeks to standardize IT applications enterprise-wide to coordinate market units as a means of jointly implementing the rivalry restraint strategy and keeping prices high enterprise-wide. However, market units, i.e., the member hospitals of MHS clustered in geographic patient markets, face competitive pressures to reduce their service costs. Market units seek to use differentiated IT applications to achieve cost reductions, which then fuel price competition in local markets, jeopardize the sustainability of the truce, and weaken the enterprise-wide price effects of the corporate parent’s rivalry restraint strategy. In a longitudinal study of 195 multihospital systems in the U.S. in the 2005-2013 time period, we found support for these ideas. The corporate-wide standardization of the operational IT of MHS complements the rivalry restraint strategy to increase enterprise-wide prices. Market units’ use of differentiated analytical IT reduces costs in local markets and weakens the price effects of the rivalry restraint strategy. The study advances IS research and practice by theorizing how the corporate-level and the market unit-level IT of a multi-unit, multimarket (MUMM) organization can have opposing moderating effects on the link between MMC and the average prices charged by the MUMM organization.

Local Competition, Multimarket Contact, and Product Quality: Evidence From Internet Service Provision

AbstractI investigate the effect of competition on quality in the internet service provision industry: I examine both local competition within markets and multimarket contact among firms across markets. This industry offers an ideal setting, as quality is both objective and measurable. I use data from speedtest.net from 2008 to 2014 to estimate a reduced-form model of the effects of local competition and multimarket contact on realized consumer download speeds. I find that increased multimarket contact leads to decreased download speeds, which is consistent with the mutual forbearance hypothesis. I also find that duopolies lead to faster download speeds than do monopolies, but that further increases in the number of competitors decrease speeds.

Screening for collusion in wholesale electricity markets: A literature review

Wholesale electricity markets have several features that increase the likelihood of collusion, including frequent interaction, multimarket contact, and a high degree of information transparency. As a result, screening techniques for detecting collusive agreements are desired. This study surveys the literature on screens for collusion and collusion in electricity markets. We discuss key features of non-competitive behaviour to be reflected in screens and suggest directions for improved screening in this industry. In particular, due to recent improvements in these methods, there is considerable potential to include machine learning and data mining techniques in screens in the electricity sector.

Multimarket Contact and Market Power Implications in the US Airline Industry

Multimarket Contact and Market Power Implications in the US Airline Industry

Flipping a Switch: The Effect of Partners’ Multimarket Contact on Strategic Alliance Termination

Flipping a Switch: The Effect of Partners’ Multimarket Contact on Strategic Alliance Termination

Two Sides of a Coin? Performance Impacts of Diversification and Multimarket Contact

Two Sides of a Coin? Performance Impacts of Diversification and Multimarket Contact

The Effect of Multimarket Contact on Patent Litigation: Evidence from the Mobile Phone Industry

The Effect of Multimarket Contact on Patent Litigation: Evidence from the Mobile Phone Industry

Litigate or let it go? Multi-market contact and IP infringement-litigation dynamics

We explore how multimarket contact (MMC) explains competitors' intellectual property (IP) infringement-litigation dynamics. We build on role congruity theory to propose that the role played by each firm in shared markets generates expectations about their behavior, determining which of the following dynamics arise: mutual forbearance (low probability of IP infringement and high probability of litigation) or mimetic behavior (high probability of IP infringement and low probability of litigation). We look into two possible roles, imitators and innovators, and claim that (1) mutual forbearance dynamics are more likely to arise when firms play the role of innovators, whereas (2) mimetic behavior dynamics are more likely to arise when firms play the role of imitators. We find support for our predictions in a sample of 813 patent infringement cases in the biopharmaceutical industry. Increasing MMC from one standard deviation below the mean to one standard deviation above the mean leads to a 21.6 (20.6) percent decrease in the probability of infringement and a 22.7 (65.1) percent increase in the probability of litigation after infringement when the rival (focal firm) plays the role of an innovator in shared markets. Alternatively, this increase in MMC leads to a 14.3 % increase (no increase) in the probability of infringement and a 5.2 (16.4) percent decrease in the probability of litigation when the rival (focal firm) plays the role of an imitator in shared markets.

Does Multimarket Contact Dampen Corporate Philanthropy? A Study on the Geographic Allocation of Corporate Philanthropy

While previous studies have discussed how much should be given by firms, less is known about how firms would spend these investments, such as strategically allocating these philanthropy activities across geographic markets. This study examines the impact of multimarket contact on corporate philanthropy in different geographic markets. Using Chinese property insurance firms from 2007 to 2015 as samples, the results show that firms are less likely to initiate philanthropy activities in geographic markets with high multimarket contact. We also found that the negative impact of multimarket competition on corporate philanthropy is stronger in highly concentrated markets. Moreover, this negative relationship is stronger when institutional distance at a firm level is low. Our study contributes to the literature on corporate philanthropy and multimarket contact.

Multimarket Contact in Health Insurance: Evidence from Medicare Advantage*

Many industries consist of large firms that compete in multiple geographic markets. Such overlap, defined as multimarket contact (MMC), may facilitate tacit collusion and soften competition. We examine the effects of MMC on health insurance prices and quality using comprehensive data on the Medicare Advantage (MA) market from 2008 through 2015. Our identification strategy exploits two plausibly exogenous changes to MMC: (1) out‐of‐market mergers; and (2) policy‐driven changes in the benchmark rates of other markets. Our results consistently support the mutual forbearance hypothesis, where we find that prices are significantly higher and high‐quality plans less pervasive as MMC increases.

Resource advantage theory, resource based theory, and theory of multimarket competition: Does multimarket rivalry restrain firms from leveraging resource Advantages?

Resource-based theory explores heterogeneity in performance across firms through the lens of valuable, rare, and imperfectly imitable resource advantages, and the organization for exploiting their potential. Resource-advantage theory of competition explores heterogeneity in performance through the lens of a firm's comparative advantage in resources and competitive advantage in the marketplace. Multimarket competition refers to competitive situations where the same firms compete against each other in multiple markets. The theory of multimarket competition posits that as the degree of multimarket contact between firms increases, the market-level intensity of competition between them will decrease, due to mutual forbearance. Building on resource-advantage theory, resource-based theory, and theory of multimarket competition, this article provides insights into whether multimarket rivalry restraints refrain firms from leveraging the full potential of their resource advantages or their resource advantages prevail over multimarket rivalry restraints. The article proposes definitions of competitive advantage and sustained competitive advantage from a marketplace perspective.

Till the cloud do us part: Technological disruption and brand retention in the enterprise software industry

As customers in technologically disrupted markets migrate from the old to the new technology, they concurrently decide whether to retain their brand or churn. Yet little is known about brand retention at the time of technology migration, which is the topic of this study. Focusing on cloud disruption in the enterprise software industry, we examine the brand retention of software customers migrating from the old on-premise to the new cloud technology. We combine a large panel of 4,659 customers across 30 brands and five horizontal markets (CRM, BI, HR, ERP, Finance) with brand classification data from industry experts. Our findings reveal that brand retention is the lowest at the time of technology migration (compared to before or after migration), yet some brands are significantly more vulnerable to churn of migrating customers than others. Brand retention at the time of migration is lower for brands that face the same rivals across multiple horizontal markets (i.e., high multimarket contact) than for brands that do not, and the retention disadvantage of such high multimarket contact brands even aggravates as the cloud technology diffuses. Furthermore, top-tier brands are less vulnerable than bottom-tier brands, but their advantage levels out as the cloud technology diffuses. Our findings help brands evaluate their vulnerability to churn of migrating customers and hence are highly relevant for B2B brands in technologically disrupted markets. To facilitate such evaluation, we present a simple assessment tool and provide guidance on mitigating vulnerability to churn.

Within-group multimarket contact, service diversity and consumer rating: Evidence from the hotel industry

ABSTRACT Based on the secondhand data of the hotel industry, this paper conducts an empirical test in order to study the relationship between within-group multimarket contact (WGMMC), service diversity and consumer rating. Besides, this paper also analyzes the moderating role of market reciprocity and travel experience. The empirical results show that WGMMC has a significant negative impact on hotels’ service diversity, and market reciprocity will strengthen the negative correlation between WGMMC and service diversity. Furthermore, there is an inverted U-shaped relationship between service diversity and consumer rating, and travel experience will weaken this relationship. By extending the impact of multimarket contact on corporate competitive behavior to the consumer side, this article enriches the empirical research in the field of dynamic competition. At the same time, this research also helps hotels expand their strategic vision, improve their relationship with consumers, and ultimately promote the healthy and orderly development of industry competition. 基于连锁酒店行业的二手数据，本文对组群内多市场接触、服务多样性与消费者评价之间的关系进行了实证检验，并分析了市场互换性与顾客旅行经验在其中发挥的调节作用。实证结果显示，组群内多市场接触对酒店服务多样性具有显著的负向影响，且市场互换性会加强这一负相关关系。此外，服务多样性与消费者评价之间呈倒U型关系，而顾客旅行经验会削弱这一关系。通过将多市场接触对企业竞争行为的影响扩展至消费端，本文丰富了动态竞争领域的实证研究。同时，本文还有助于酒店企业扩展战略视野、改善企业与消费者之间的关系，并最终促进行业竞争的健康有序发展。