In this paper we assess the impact of multimarket contact of banks on their market power by means of a simultaneous equation model, in which the divergence of price from marginal cost is a function of multimarket linkages. The model is estimated using aggregate data from the Italian regions for the years 1997-2009. Our results show that multimarket contact is positively and significantly correlated to the market power index, and is also connected to both home and non-home market concentration. The evidence is robust to changes in model specification and multimarket contact measures, and supports the idea that firms which have a greater amount of contact are more likely to collude.
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