Testing Forbearance Experimentally—Duopolistic Competition of Conglomerate Firms

Werner Güth, Kirsten Häger, Oliver Kirchkamp, Joachim Schwalbach

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, effectively limit competition. Unlike these authors, our more general analysis assumes differentiated rather than homogeneous products and distinguishes strategic substitutes as well as complements to test their forbearance hypothesis. We vary the duration of the interaction to disentangle effects of forbearance and repetition. Surprisingly, rather than limiting competition, conglomerate firms foster it. In line with our expectations, we find more cooperation with strategic complements than with strategic substitutes and also more cooperation with long term than with short term interaction.

Keywords: Experiment, Forbearance, Competition

JEL-Code: C91, D43, L41

• The paper is published as: Werner Güth, Kirsten Häger, Oliver Kirchkamp, Joachim Schwalbach (2016), “Testing Forbearance Experimentally—Duopolistic Competition of Conglomerate Firms”, International Journal of the Economics of Business, Vol. 23(1), pp. 63-86.
• Here is the most recent version of the working paper as of 26th September 2014
• An earlier version of the paper as of 30 June 2010 is available as Jena Economic Research Paper 2010-043
• Online Appendix.
• Here are also strategies our participants left at the end of the experiment.

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