Testing Forbearance Experimentally: Duopolistic Competition of Conglomerate Firms

Werner Güth, Kirsten Häger, Oliver Kirchkamp, Joachim Schwalbach
2015 International Journal of the Economics of Business  
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
more » ... 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. We would like to thank Stefan Altmann and participants of the ESA European Meeting 2009 in Innsbruck for helpful comments.
doi:10.1080/13571516.2015.1049841 fatcat:eb23j246cbcp5hplrgzcbcu2wi