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The Divergent Effects of Long-Term and Short-Term Entry Investments on Multimarket Cartels

Author

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  • Daniel Cracau
  • Abdolkarim Sadrieh

Abstract

We study multimarket effects in a setting with home-market asymmetries. In our duopoly experiment each firm has a home market but may also enter the other firm's market. Without entry barriers, we observe a high level of mutual forbearance with firms serving home markets exclusively. With short-term entry barriers, the competition rates decrease significantly. Surprisingly, with long-term entry barriers, firms exhibit higher levels of competition, entering each other's market more often. We conjecture that in the latter case, bearing the cost of entryis perceived as a signal for intentions to compete, which has an adverse effect on cooperation.

Suggested Citation

  • Daniel Cracau & Abdolkarim Sadrieh, 2019. "The Divergent Effects of Long-Term and Short-Term Entry Investments on Multimarket Cartels," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 175(3), pages 558-581.
    • Handle: RePEc:mhr:jinste:urn:doi:10.1628/jite-2019-0019
    DOI: 10.1628/jite-2019-0019
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    More about this item

    Keywords

    market entry barriers; mutual forbearance; prisoners' dilemma; experimental economics;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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