Competition in a multimarket environment: The case of market exit

Studies of competition typically have two underlying assumptions: that competition occurs within the boundaries of industries or markets and that all firms in a market or industry are affected equally by competitive pressures. The concept of multipoint competition challenges both assumptions. Multipoint theory addresses how different levels of contact between firms across multiple markets affect competition in individual markets. Its main argument is that high levels of contact between firms across markets will induce mutual forbearance, causing multipoint competitors to refrain from aggressively attacking each other. The restraint stems from the fact that high levels of intermarket contact enable a firm to respond to an aggressive action by a multipoint rival in markets other than the one in which the action takes place. That possibility raises the potential costs of aggressive moves and serves as a credible deterrent, especially if a firm can respond in several markets. In addition, multipoint competition helps firms to interpret their rivals' intentions and signal their own, reducing the likelihood of costly misunderstandings. The authors elaborate on those ideas to examine how a hospital's degree of intermarket contact with its competitors in a particular service market affects the likelihood that it will exit that market.