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Mutual Forbearance in Experimental Conglomerate Markets

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  • Owen R. Phillips
  • Charles F. Mason

Abstract

We conduct economic experiments to gauge the level of cooperation between conglomerate rivals. First we run control experiments to observe cooperation between subjects acting as duopolists in one of two markets. In the control experiments, subject pairs choose a quantity xi (or yi) from a payoff matrix in a repeated game. Relatively less cooperation is observed in the Y market than in the X market. A second series of experiments then combines the two payoff matrices to create a conglomerate setting. Facing each other in two markets, opponents now choose an (xi, yi) pair each period. We find that conglomeration encourages more coperation in the Y market but less cooperation in the X market. Time-series analysis of our conglomerate subjects' choices strongly supports the recent game-theoretic propositions in Bernheim and Whinston (1990).

Suggested Citation

  • Owen R. Phillips & Charles F. Mason, 1992. "Mutual Forbearance in Experimental Conglomerate Markets," RAND Journal of Economics, The RAND Corporation, vol. 23(3), pages 395-414, Autumn.
    • Handle: RePEc:rje:randje:v:23:y:1992:i:autumn:p:395-414
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    Cited by:

    1. Mason, Charles F. & Phillips, Owen R., 2001. "Dynamic learning in a two-person experimental game," Journal of Economic Dynamics and Control, Elsevier, vol. 25(9), pages 1305-1344, September.
    2. Nuno Limão, 2018. "Trade policy, cross-border externalities and lobbies: do linked agreements enforce more cooperative outcomes?," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 9, pages 257-281, World Scientific Publishing Co. Pte. Ltd..
    3. Ahmed, Rasha & Segerson, Kathleen, 2011. "Collective voluntary agreements to eliminate polluting products," Resource and Energy Economics, Elsevier, vol. 33(3), pages 572-588, September.
    4. Ding, John Y., 1993. "Toward a Framework for Analyzing Multimarket Contact and Multinational Competition," Occasional Papers 233154, Regional Research Project NC-194: Organization and Performance of World Food Systems.
    5. Timothy L. Sorenson, 2007. "Credible collusion in multimarket oligopoly," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 115-128.
    6. David Goodwin & Stuart Mestelman, 2002. "Advance Production Duopolies and Posted Prices or Market-Clearing Prices," Department of Economics Working Papers 2002-07, McMaster University.
    7. Ma, Hao, 1998. "Mutual forbearance in international business," Journal of International Management, Elsevier, vol. 4(2), pages 129-147, October.
    8. Charles F. Mason & Owen R. Phillips, 2016. "Imminent Entry and the Transition to Multimarket Rivalry in a Laboratory Setting," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 25(4), pages 1018-1039, December.
    9. Davide Vannoni, 2000. "The diversifield firm: non formal theories versus formal models," ECONOMIA E POLITICA INDUSTRIALE, FrancoAngeli Editore, vol. 2000(106).
    10. Thomas, Charles J. & Willig, Robert D., 2006. "The risk of contagion from multimarket contact," International Journal of Industrial Organization, Elsevier, vol. 24(6), pages 1157-1184, November.
    11. Eric Darmon & Thomas Le Texier & Zhiwen Li & Thierry Pénard, 2019. "Multimarket Contact and Platform Competition: Reassessing the Mutual Forbearance Hypothesis," Economics Working Paper Archive (University of Rennes & University of Caen) 2019-07, Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS.
    12. Spagnolo, Giancarlo, 1996. "Multimarket Contact, Concavity, and Collusion: on Extremal Equilibria of Interdependent Supergames," SSE/EFI Working Paper Series in Economics and Finance 104, Stockholm School of Economics, revised 30 Nov 1998.
    13. Daniel Cracau & Abdolkarim Sadrieh, 2014. "The Divergent Effects of Long-Term and Short-Term Entry Investments on Home Market Cartels," FEMM Working Papers 140003, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    14. Werner Güth & Kirsten Häger & Oliver Kirchkamp & Joachim Schwalbach, 2016. "Testing Forbearance Experimentally: Duopolistic Competition of Conglomerate Firms," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 23(1), pages 63-86, February.
    15. Feinberg, Robert M., 2013. "Multimarket contact and export entry," Economics Letters, Elsevier, vol. 121(1), pages 82-84.
    16. Ding, John Y., 1995. "Toward A Framework For Analyzing Multimarket Contact And Multinational Competition," Journal of Food Distribution Research, Food Distribution Research Society, vol. 26(1), pages 1-7, February.
    17. Zou, Li & Yu, Chunyan & Dresner, Martin, 2012. "Multimarket contact, alliance membership, and prices in international airline markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(2), pages 555-565.
    18. Mason, Charles F. & Phillips, Owen R., 2000. "Vertical integration and collusive incentives: an experimental analysis," International Journal of Industrial Organization, Elsevier, vol. 18(3), pages 471-496, April.
    19. Davis, Douglas D., 1999. "Advance production and Cournot outcomes: an experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 40(1), pages 59-79, September.
    20. Ert, Eyal & Cohen-Amin, Shier & Dinar, Ariel, 2019. "The effect of issue linkage on cooperation in bilateral conflicts: An experimental analysis," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 79(C), pages 134-142.
    21. Leheyda, Nina, 2008. "Market Power, Multimarket Contact and Pricing: Some Evidence from the US Automobile Market," ZEW Discussion Papers 08-118, ZEW - Leibniz Centre for European Economic Research.
    22. Junho Yang & Tetsuya Kawamura & Kazuhito Ogawa, 2016. "Experimental Multimarket Contact Inhibits Cooperation," Metroeconomica, Wiley Blackwell, vol. 67(1), pages 21-43, February.

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