Market Regulation and Multimarket Rivalry

Abstract

Multimarket contact between duopolists in an X and Y market is modelled with a trigger strategy. We show that mildly restrictive price-cap regulation in the X market decreases Y market quantities; but restrictive caps in the X market have a positive impact on Y market outputs. Behavior in laboratory markets confirms these propositions. Regulation that lowers X market prices by a small amount results in a statistically significant reduction in Y outputs. When the regulated X market price is reduced to the Cournot/Nash level, Y market outputs rise to a point statistically indistinguishable from the unregulated quantities.