How Do Incumbents Respond To The Threat Of Entry

Preliminary--COMMENTS WELCOME How Do Incumbents Respond to the Threat of Entry? leaven from the major Airlines* Austan Goolsbee University of dinero, GSB American Bar Foundation and NBER goolsbee@gsb.uchicago.edu Chad Syverson University of Chicago and NBER syverson@uchicago.edu and victor swig: May 2004 Current Draft: July 2004 Abstract This account tests how incumbents resolve to the threat of entry of competitors, as distinguished from their reaction to competitors essential entry. It uses a case study from the passenger respiratory tract attentionspecifically, the evolution of staboohwest Airlines roadway networkto fall upon particular proposition routes where the probability of future entry rises abruptly. When southwest begins operating in airports on both sides of a route but non the route itself, this dramatically raises the chance they will separate brief that route in the near future. We examine the price of the incumbents on threatened routes in the period surrounding much(prenominal) events. We hazard that incumbents cut prices significantly when threatened by Southwests entry into their routes. This is true even after positive 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 drop off 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 appends in their passenger loads coincident with these fare cuts. This is consisten t with theories implying incumbents will try! to generate about longer-term faithfulness among current customers before the entry of a juvenile competitor. We examine evidence relating this motive to build demand shopworn 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, sight it on our website: OrderEssay.net

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