Mutual Forbearance in Experimental Conglomerate Markets

Owen R. Phillips and Charles Mason

RAND Journal of Economics, 1992, vol. 23, issue 3, 395-414

Abstract: We conduct economic experiments to gauge the level of cooperation between conglomerate rivals. First we run control experiments to observe cooperation between subjects acting as duopolists in one of two markets. In the control experiments, subject pairs choose a quantity xi (or yi) from a payoff matrix in a repeated game. Relatively less cooperation is observed in the Y market than in the X market. A second series of experiments then combines the two payoff matrices to create a conglomerate setting. Facing each other in two markets, opponents now choose an (xi, yi) pair each period. We find that conglomeration encourages more coperation in the Y market but less cooperation in the X market. Time-series analysis of our conglomerate subjects' choices strongly supports the recent game-theoretic propositions in Bernheim and Whinston (1990).

Date: 1992
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