Diversification, Multi-market Contact and Profitability.
This paper analyzes the relationship between diversification, multi-market contact and industry profitability. It focuses on the link between diversification and multi-market contact to show that, when diversification establishes or increases the extent to which firms meet in more than one market, the effect of such multi-market contact is to increase the possibility that collusion emerges as an evolutionary stable strategy. As a result, multi-market contact may increase the potential for tacit collusion and so lead to higher profitability. The effects of diversification and multi-market contact on the price-cost margin and the rate of return to capital are estimated using a specially constructed new database for U.K. manufacturing industry in 1979. This database provides information on the diversification and multi-market contact of 418 firms across 134 manufacturing industries, thus linking firm- and industry-level data. The results show a clear positive effect of multi-market contact on industry profitability. Copyright 1993 by The London School of Economics and Political Science.
Year of publication: |
1993
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Authors: | Hughes, Kirsty ; Oughton, Christine |
Published in: |
Economica. - London School of Economics (LSE). - Vol. 60.1993, 238, p. 203-24
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Publisher: |
London School of Economics (LSE) |
Saved in:
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