Federico BOFFA School of Economics and Management, Free University of Bolzano/Bozen,
Bolzano, Italy.
Carlo SCARPA Dipartimento di Scienze Economiche, Università di Brescia,
Brescia, Italy.
Abstract - The paper examines
the effects of interconnecting two (network) markets that previously
were totally separated. In each market different capacity-constrained
.rms operate. Firms collude whenever it is rational for them to do so.
We identify the maximum sustainable price in each of the two separate
markets, as a function of the number of firms in the market, and of
the vector of capacities. Interconnecting the two markets may bring
about greater competition,but greater ability to collude as well. We
establish conditions on the number of firms and on capacity
constraints such that interconnection fosters collusion and decreases
total welfare. In this case, the interconnection of two markets
exports collusion, rather than exporting competition.