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

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.