Multi-Factor-Market Contact: From Forbearance to Vengeance and Homogeneity

Abstract

Multimarket contact is an important consideration in the analysis of firm competitive behavior. However, the role multi-factor-market contact—contact across multiple factor markets—plays in factor market rivalry has largely been overlooked. To explore the relationships among multi-factor-market contact, factor market competition, and firm competitive behavior, I combine arguments from the existing competitive dynamics and resource-based view literatures. To empirically capture these relationships net of the potentially confounding effects of product market competition, I test my hypotheses in the upstream oil and gas industry, where firms compete for scarce resources to produce commodities. Analyzing panel data that comprise over one million firm-month observations from 5,445 upstream oil and gas companies, I find evidence that multi-factor-market contact makes rivals act less intensely but also respond more aggressively. Further, factor market competition engenders action heterogeneity, but multi-factor-market contact weakens this effect toward homogeneity.