The Strategic Effects of Multimarket Contact: Mutual Forbearance and Competitive Response in the Personal Computer Industry

47 Pages Posted: 24 Feb 2009

See all articles by Wooseong Kang

Wooseong Kang

North Carolina State University - College of Management

Barry L. Bayus

University of North Carolina Kenan-Flagler Business School

Sridhar Balasubramanian

University of North Carolina Kenan-Flagler Business School

Date Written: February 1, 2009

Abstract

Firms frequently compete across multiple segments. Such multimarket contact has been shown to deter aggressive competition, leading to what has been termed "mutual forbearance." Empirical support for this phenomenon derives mainly from studies of the direct effects of multimarket contact on a firm's decision variables. Our analysis extends the existing literature by empirically considering both the direct effects (i.e., how multimarket contact affects a firm's decision variables) and its strategic effects (i.e., how multimarket contact affects a firm's reactions to its competitors' decision variables). We study the pricing and new product introduction decisions of firms in the personal computer industry. Consistent with prior research, we find that firms mutually forbear in price and new product introductions. More important, we find strong strategic effects of MMC that are asymmetric in price and product decisions-firms respond aggressively to competitive attacks by introducing new products but do not use price as a retaliatory weapon. Thus, firms in the personal computer industry isolate any competitive retaliation to only a single marketing variable. Our results offer a deeper understanding of the influence of multimarket contact on firm behavior.

Keywords: Strategy, Marketing, Anittrust

JEL Classification: L10, L40, M31, C23, L63

Suggested Citation

Kang, Wooseong and Bayus, Barry and Balasubramanian, Sridhar, The Strategic Effects of Multimarket Contact: Mutual Forbearance and Competitive Response in the Personal Computer Industry (February 1, 2009). Available at SSRN: https://ssrn.com/abstract=1345497 or http://dx.doi.org/10.2139/ssrn.1345497

Wooseong Kang (Contact Author)

North Carolina State University - College of Management ( email )

Campus Box 7229
Raleigh, NC 27695
United States
919-515-6953 (Phone)

Barry Bayus

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599
United States
919-962-3210 (Phone)

Sridhar Balasubramanian

University of North Carolina Kenan-Flagler Business School ( email )

Chapel Hill, NC 27599
United States
919-962-3194 (Phone)
919-962-7186 (Fax)

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