'Delayed Forbearance': Multipoint Contact and Mutual Forbearance in Inaugural and Subsequent Actions

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One strand of theoretical development in the multimarket competition literature asks the important question of whether or not mutual forbearance applies uniformly to all types of competitive actions. For example, scholars have shown that mutual forbearance takes effect for exploitation, but not exploration-based actions. Extending this line of research, we study how the onset of mutual forbearance also differs across inaugural and subsequent competitive actions. The key difference between the two lies in the identity of the initiator -- inaugural actions are by firms new to the market domain, and subsequent ones are by existing incumbents. The crux of our argument is that mutual forbearance has a delayed onset for subsequent competitive actions (relative to inaugural ones). We test our predictions in the context of product segment entry decisions of automobile firms in the US market between 1980 and 2015. We find an inverted-U shaped effect of multisegment overlap on a firm's likelihood of making inaugural and subsequent entries into a product segment. Crucially, however, we also find that the inflection point of the inverted U-shaped curve is substantially higher for subsequent entries than for inaugural entries. This corroborates our key argument that mutual forbearance sets in later for subsequent competitive actions than for inaugural ones.