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“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