The Divergent Effects of Long-Term and Short-Term Entry Investments on Multimarket Cartels

Daniel Cracau and Abdolkarim Sadrieh

Journal of Institutional and Theoretical Economics (JITE), 2019, vol. 175, issue 3, 558-581

Abstract: We study multimarket effects in a setting with home-market asymmetries. In our duopoly experiment each firm has a home market but may also enter the other firm's market. Without entry barriers, we observe a high level of mutual forbearance with firms serving home markets exclusively. With short-term entry barriers, the competition rates decrease significantly. Surprisingly, with long-term entry barriers, firms exhibit higher levels of competition, entering each other's market more often. We conjecture that in the latter case, bearing the cost of entryis perceived as a signal for intentions to compete, which has an adverse effect on cooperation.

Keywords: market entry barriers; mutual forbearance; prisoners' dilemma; experimental economics (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1628/jite-2019-0019

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