“Testing Forbearance Experimentally—Duopolistic Competition of Conglomerate Firms”

Werner Güth, Kirsten Häger, Oliver Kirchkamp, Joachim Schwalbach

Like Feinberg and Sherman (1985) and Philipps 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.

Keywords: Experiment, Forbearance, Competition

JEL-Code: C91, D43, L41

• An earlier version of the paper as of 30 June 2010 is available as Jena Economic Research Paper 2010-043
• Here is the most recent version as of 1st February 2013

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