Essays on Multi-Market Contact And Mutual Forbearance

Economic theory states that as the number of firms in the market grows, firms behave more competitively and consumer choice therefore improves. However, when the same set of firms compete in multiple markets, there could exist some inter-market dynamics where a firm can react to a decision taken by a competitor in one market in a completely different market where that competitor is also present. One scenario is that firms competing across multiple markets will try to ``play nice" with one another to avoid possible cross market retaliation. Corwin Edwards first posited this theory in 1955 and called it ``mutual forbearance" (MF). When one set of firms competes in more than one market, then these firms have multi-market contact (MMC). Past empirical and theoretical research on multi-market competition further affirms a significant relationship between MMC and firm behavior related to competition and market entry. While literature on the effects of MMC is vast, most works focus on firm behavior in domestic markets. Chapters 3 and 4 of this dissertation aim to add to the sparse literature on the effect of MMC on firms operating in international markets. Motivated by litigation finding evidence of collusive behavior between battery manufacturers, I use confidential trade transaction data maintained by the U.S. Census Bureau to provide empirical evidence that MMC has a positive and significant effect on export prices and market entry among likely competitors in international battery markets. In addition, this dissertation also explores the mechanism driving the relationship between MMC and cooperation among competitors. The established theoretical reasoning concludes that firms with MMC are likely to cooperate to avoid punishment in other markets. Using an agent-based simulation approach where simulated learning firms compete in an iterated Prisoner's Dilemma , I uncover a potential alternative mechanism where increased familiarity of competitors makes cooperation more likely.