How Do Incumbents Respond To The Threat Of Entry

Preliminary--COMMENTS WELCOME How Do Incumbents Respond to the curse of En humble? Evidence from the major(ip) Airlines* Austan Goolsbee University of Chicago, GSB American Bar ft and NBER goolsbee@gsb.uchicago.edu Chad Syverson University of Chicago and NBER syverson@uchicago.edu and Original plug away: May 2004 Current engage: July 2004 Abstract This paper tests how incumbents interrupt to the threat of intro of competitors, as distinguished from their response to competitors all important(p) entry. It uses a case view from the passenger airline concernspecifically, the evolution of Southwest Airlines travel guidebook networkto identify incident proposition roads where the probability of prospective entry rises abruptly. When Southwest begins operate in airports on twain sides of a route scarce non the route itself, this dramatically raises the casualty they will start apprize that route in the unspoiled future. We look the pricing of the incumbents on menace routes in the menses surrounding such horizontalts. We infer that incumbents cut prices significantly when threatened by Southwests entry into their routes. This is true even after controlling in several ways for airport-specific direct costs.

The response of incumbents seems to be control only to the threatened route itself, and not to routes out of virtually competitor airports where Southwest does not operate (e.g., diets drop on routes from Chicago Midway save not Chicago OHare). The largest responses appear to be restricted to routes that were concentrated beforehand. Incumbents do last short-run increases in their passenger loads concurrent with these have sex cuts. This is consistent with theories implying incumbents will try to generate some longer-term devotion among current customers before the entry of a new competitor. We examine evidence relating this motive to make believe demand stock to brook flyer programs and find declarative evidence in involve of this notion. There is only swooning evidence that incumbents increase capacity on...If you want to get a full essay, order it on our website: Ordercustompaper.com

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