Sales Maximisation and Tacit Collusion under Multimarket Contact: A Model-Based Analysis

Abstract

This study examines how the conditions supporting tacit collusion across multiple markets change when firms maximise sales revenue rather than profit. An infinite-horizon repeated-game model compares profit and sales-revenue objectives in single- and two-market settings, with sales maximisation subject to a non-negative-profit constraint. The analysis shows that market share and market growth influence cooperative stability under both objectives, but sales maximisation introduces an additional determinant: the proportional change in aggregate market sales following a price war. When punishment preserves substantial sales, the future loss from deviation is smaller and a higher discount factor is required to sustain cooperation. Under multimarket contact, the relevant market-share term becomes the average share across linked markets, so contact can stabilise cooperation when asymmetries across markets offset one another, but it does not automatically strengthen collusion in symmetric settings. Under linear demand, the demand-response parameter is determined by demand primitives, and the sales-maximisation threshold equals the profit-maximisation threshold multiplied by the price elasticity of demand at the collusive price. The present paper develops the earlier sales-maximisation framework by deriving this linear-demand characterisation and by positioning the resulting conditions within recent research on managerial incentives and multimarket contact.