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

Daniel Cracau and Abdolkarim Sadrieh

No 140003, FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management

Abstract: Positive effects of multimarket activities on cooperation between firms are widely acknowledged. We study these effects in a setting with home market asymmetries as is typical for global competition. In our multimarket 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 their home markets exclusively. With short-term entry barriers, the competition rates decrease significantly, as expected. 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 entry is perceived as a signal for the intention to compete and has an adverse effect on cooperation.

Keywords: Market Entry Barriers; Mutual Forbearance; Prisoner's Dilemma; Experimental Economics (search for similar items in EconPapers)
JEL-codes: D4 L1 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2014-04
New Economics Papers: this item is included in nep-bec, nep-com and nep-law
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.fww.ovgu.de/fww_media/femm/femm_2014/2014_03.pdf First version, 2011 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:mag:wpaper:140003

Access Statistics for this paper

More papers in FEMM Working Papers from Otto-von-Guericke University Magdeburg, Faculty of Economics and Management Contact information at EDIRC.
Bibliographic data for series maintained by Guido Henkel ().