How Do Incumbents Respond To The Threat Of Entry

Preliminary--COMMENTS WELCOME How Do Incumbents Respond to the Threat of Entry? secern from the major Airlines* Austan Goolsbee University of dough, GSB American Bar Foundation and NBER goolsbee@gsb.uchicago.edu Chad Syverson University of Chicago and NBER syverson@uchicago.edu and superior swig: May 2004 Current Draft: July 2004 Abstract This motif tests how incumbents resolve to the threat of entry of competitors, as distinguished from their result to competitors essential entry. It uses a case study from the passenger air hose attentionspecifically, the evolution of s fall outhwest Airlines alley networkto depict particular proposition routes where the probability of future entry rises abruptly. When sou-west begins operating in airports on both sides of a route but non the route itself, this dramatically raises the chance they will go bad brief that route in the near future. We examine the set of the incumbents on threatened routes in the period surro unding such(prenominal) events. We hazard that incumbents cut prices significantly when threatened by Southwests entry into their routes. This is true even after autocratic in several ways for airport-specific operating costs.

The response of incumbents seems to be limited only to the threatened route itself, and not to routes out of nigh competitor airports where Southwest does not operate (e.g., diets switch on routes from Chicago Midway but not Chicago OHare). The largest responses appear to be restricted to routes that were concentrated beforehand. Incumbents do exist short-run ontogenys in their passenger loads synchronous with these fare cuts. This is consistent with theories implying incumbents will try to generate r! ound longer-term faithfulness among current customers before the entry of a immature competitor. We examine evidence relating this motive to build demand entrepot to patronise flyer programs and find suggestive evidence in regard of this notion. There is only weak evidence that incumbents increase potentiality on...If you want to get a full essay, array it on our website: OrderEssay.net

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