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Multimarket contact and sales growth: evidence from insurance

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  • Henrich R. Greve

Abstract

Research on pricing, profits, and firm survival has shown that multimarket contact causes mutual forbearance against competition, but has not considered the consequences of imperfect observability of competitive moves. Here, predictions are developed to explain how mutual forbearance occurs—but sometimes fails—in markets with imperfect observability. Mutual forbearance means that firms do not seek to take market share from each other through price cuts or nonprice competition, and thus that sales grow at uniform rates. Firms defect from mutual forbearance, and hence have higher sales growth, if the potential rewards are high and the likelihood of being discovered is low. This theory is tested on a panel of firms operating in the Norwegian general insurance industry. The evidence suggests that sales growth is most rapid in firms that do not meet many multimarket competitors in a given market and firms that are economically troubled. Growing or highly concentrated markets have higher heterogeneity of growth rates. Copyright © 2007 John Wiley & Sons, Ltd.

Suggested Citation

  • Henrich R. Greve, 2008. "Multimarket contact and sales growth: evidence from insurance," Strategic Management Journal, Wiley Blackwell, vol. 29(3), pages 229-249, March.
    • Handle: RePEc:bla:stratm:v:29:y:2008:i:3:p:229-249
    DOI: 10.1002/smj.662
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    Cited by:

    1. Özgecan Koçak & Serden Özcan, 2013. "How Does Rivals' Presence Affect Firms' Decision to Enter New Markets? Economic and Sociological Explanations," Management Science, INFORMS, vol. 59(11), pages 2586-2603, November.
    2. Min Liu & Filippo Carlo Wezel, 2015. "Davids Against Goliath? Collective Identities and the Market Success of Peripheral Organizations During Resource Partitioning," Organization Science, INFORMS, vol. 26(1), pages 293-309, February.
    3. Joel A. C. Baum & Anne Bowers & Partha Mohanram, 2016. "Mutual Forbearance and Competition Among Security Analysts," Management Science, INFORMS, vol. 62(6), pages 1610-1631, June.
    4. David Coble, 2019. "Multimarket Contact in Banking Competition in The United States," Working Papers Central Bank of Chile 858, Central Bank of Chile.
    5. Werner Güth & Kirsten Häger & Oliver Kirchkamp & Joachim Schwalbach, 2016. "Testing Forbearance Experimentally: Duopolistic Competition of Conglomerate Firms," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 23(1), pages 63-86, February.
    6. Heather Berry, 2020. "Internationalizing firm innovations: The influence of multimarket overlap in knowledge activities," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 51(6), pages 963-985, August.
    7. Y. Sekou Bermiss & Benjamin L. Hallen & Rory McDonald & Emily C. Pahnke, 2017. "Entrepreneurial beacons: The Yale endowment, run‐ups, and the growth of venture capital," Strategic Management Journal, Wiley Blackwell, vol. 38(3), pages 545-565, March.
    8. Matt Theeke & Hun Lee, 2017. "Multimarket Contact and Rivalry over Knowledge‐based Resources," Strategic Management Journal, Wiley Blackwell, vol. 38(12), pages 2508-2531, December.
    9. Jaime Gómez & Raquel Orcos & Sergio Palomas, 2013. "Multimarket Contact Externalities: The Effect of Rivals' Multimarket Contacts on Focal Firm Performance," Working Papers 1302, Departament Empresa, Universitat Autònoma de Barcelona, revised Apr 2013.
    10. Zou, Li & Yu, Chunyan & Dresner, Martin, 2012. "Multimarket contact, alliance membership, and prices in international airline markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(2), pages 555-565.
    11. Iftekhar Hasan & Matej Marinč, 2016. "Should competition policy in banking be amended during crises? Lessons from the EU," European Journal of Law and Economics, Springer, vol. 42(2), pages 295-324, October.
    12. Rene M. Bakker & Joris Knoben, 2015. "Built to Last or Meant to End: Intertemporal Choice in Strategic Alliance Portfolios," Organization Science, INFORMS, vol. 26(1), pages 256-276, February.
    13. Degl’Innocenti, Marta & Girardone, Claudia & Torluccio, Giuseppe, 2014. "Diversification, multimarket contacts and profits in the leasing industry," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 31(C), pages 231-252.
    14. Jin, Tuofu & Eapen, Alex, 2022. "‘Delayed Forbearance’: Multipoint contact and mutual forbearance in inaugural and subsequent competitive actions," Journal of Business Research, Elsevier, vol. 149(C), pages 938-953.
    15. Hadani, Michael & Goranova, Maria & Khan, Raihan, 2011. "Institutional investors, shareholder activism, and earnings management," Journal of Business Research, Elsevier, vol. 64(12), pages 1352-1360.
    16. Simon Dekeyser & Ann Gaeremynck & W. Robert Knechel & Marleen Willekens, 2021. "Multimarket Contact and Mutual Forbearance in Audit Markets," Journal of Accounting Research, Wiley Blackwell, vol. 59(5), pages 1651-1688, December.

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