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Testing Forbearance Experimentally - Duopolistic Competition of Conglomerate Firms

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Author Info

  • Werner Güth

    ()
    (Max Planck Institute of Economics, Strategic Interaction Group)

  • Kirsten Häger

    (Universität Jena)

  • Oliver Kirchkamp

    ()
    (School of Economics and Business Administration, Friedrich-Schiller-University Jena)

  • Joachim Schwalbach

    (Humboldt-Universität zu Berlin, Institute of Management)

Abstract

Like Feinberg and Sherman (1985) and Phillips and Mason (1992) we test experimentally whether conglomerate firms, i.e., firms competing on multiple structurally unrelated markets, can effectively limit competition. Our more general analysis assumes differentiated rather than homogeneous products and distinguishes strategic substitutes as well as complements to test this forbearance hypothesis. Rather than only a partners design we also explore a random strangers design to disentangle effects of forbearance and repeated interaction. Surprisingly, conglomerate firms do not limit competition, they rather foster it. More in line with our expectations we find more cooperation in complement markets than in substitute markets and also more cooperation in a partners than in a strangers matching.

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Bibliographic Info

Paper provided by Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics in its series Jena Economic Research Papers with number 2010-043.

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Date of creation: 01 Jul 2010
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Handle: RePEc:jrp:jrpwrp:2010-043

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Keywords: Experiment; Forbearance; Competition;

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  1. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  2. Uwe Cantner & Werner Güth & Andreas Nicklisch & Torsten Weiland, 2009. "Competition In Product Design: An Experiment Exploring Innovation Behavior," Metroeconomica, Wiley Blackwell, vol. 60(4), pages 724-752, November.
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