For the economy to work well, resources should flow freely from one industry to another in response to changing demands and costs. The capital market can allocate resources by means of the entry and exit of firms. But entry can be by new firms or existing ones through diversification. Chapter 1 observes that a multimarket firm may use its own internal organization to allocate resources more efficiently than the arm's-length market mechanism could do. For example, Williamson (1970) and Weston (1970) stress advantages of internal capital transfers over the market. Because of such advantages, Gort (1962, p. 4) and Rumelt (1974, p. 2) state that multimarket operation of firms will speed redeployment of resources in response to profitable opportunities. They would be right if multimarket operation were not coincident with multimarket contact.

A priori impact of multimarket grouping

While diversified companies may have advantages that would facilitate the movement of capital, as explained in Chapter 2 they have enhanced opportunity for coordination if they meet in several markets. Multimarket groups are groups of diversified firms whose activities span the same markets to a significant extent. Multimarket grouping of sellers could reduce the flow of resources, thereby inhibiting a socially desirable competitive process, if it proceeded until the diversified sellers recognized their mutual dependence and coordinated a reduction in competition, tacitly or otherwise.