A third thing to think about is this idea of reducing rivalry through mutual
forbearance.
If we made a political analogy, this would be like mutually assured destruction.
The point is that by having competition in multiple markets
we raise the stakes that companies would not want to fight one another.
In other words, if we compete in one market and
we start to aggressively price against one another then we might end up inducing
a price war in an adjacent market where we're also competing as well.
And if we're competing across enough different markets,
the mutually assured destruction leads to mutual forbearance.
This idea that we won't engage in such fights knowing that it's costs are so
high across these multiple markets.
Now a number of cautions here.
Often the complexity of such a strategy,
makes that type of tacit collusion that I'm arguing about here,
that we won't engage in price competition, difficult to realize.
And when price rivalry does break out, or a price war does break out they tend to be
very severe because now once again you're competing across multiple markets.
In the media industry it's been interesting in recent years.
In the U.S we've had a number of different instances where large integrative players,
let’s say Comcast for example, which owns NBC and also has cable television rights
has argued and competed with companies like Disney, who have entertainment and
media, but do not have downstream distribution like a cable operator.
And have basically used their position to then try to shut down Disney's offerings
on their stations or at least argue and negotiate for better pricing deals there.
So again, it is possible that being
competing in multiple markets may create this mutual forbearance.
But there's also the possibility that this would be very hard to achieve and in fact
might intensify the potential for price wars, and the like, with an industry.