Multimarket Contact and Price Coordination in the Cellular Telephone Industry

Abstract

Empirical studies have confirmed the prediction of theoretical models that contact in multiple markets may enhance firms' abilities to tacitly collude and consequently achieve higher prices and profits. It has remained largely unexplored, however, how firms coordinate their actions. This paper identifies a method of pricing in the cellular telephone industry that seems to enable firms to coordinate their actions across markets. This pricing pattern is found to raise prices by approximately 7–10%, and cannot be attributed to a variety of noncooperative explanations.