The Effect of Media Coverage and Alliance Experience on Mutual Forbearance: Evidence from the Automotive Industry in The U.S.

In the management literature the competitiveness of rivals has been a major concern. Whether rivals will counter attack to the action of firms is an important aspect when managers are making a strategic decision. According to the mutual forbearance hypothesis, firms tend to be less competitive when they have more markets in common. Studies argue that this mutual forbearance of firms is because the firms who are competing in multiple markets will be more cautious to attack their rival knowing that their rival can initiate a massive counter attack on multiple markets. We examine how organization’s awareness and relationship with other firms can affect its decision to implement mutual forbearance. More specifically in the awareness aspect we concentrate on the media coverage of firms. We argue that the media coverage will make the relationship between multiple markets and competition stronger. The relational aspect of firms was studied by the alliance experience, and type of the alliance between firms. We tested these hypotheses with a sample of 10 automobile companies operating in the U.S. Data was gathered through Automotive news web site, which is a respected journal in the automobile industry. The results confirmed that alliance experience positively moderates the relationship between multimarket contact and competitiveness of firms, and that scale alliance had more powerful impact on mutual forbearance than link alliance. But in this study the media coverage showed no significant results.