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Using a Dominant-group-fringe model, we show that the choice of punishment path in the event that unilateral defection occurs depends upon the common discount parameter, and that when the discount parameter is given the punishment path may depend upon the size of the dominant- group. A striking result is that only for sufficiently small dominant groups in sufficiently small industries are there cases where costs affect these choices. Consequently, costs are irrelevant to the choice of punishment in industries with a large number of ጿirms.

In this paper we explore the concept of a 'strategic contract' between two of three entrants that arrive sequentially in a spatial market and practise discriminatory pricing. We compare our results with those arising when two firms merge to create two plants. Although this second problem is superficially similar to the first, the underlying behavior and implications differ in crucial respects. The consequences, in terms of a variety of measures of welfare, of all of our results are demonstrated. We also consider the implications of the results for the so-called 'merger paradox'