How do incumbents react to the exit of a potential competitor? Evidence from the airline sector

Rafael Rocha Oliveira (rafaelmisso@yahoo.com.br) and Claudio Lucinda (claudiolucinda@usp.br)

No 2024_04, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: Little attention has been given in the literature to the effects of the exit of a potential competitor. The extant papers usually analyze the incumbent response only in markets directly affected. They do not explore the effects of reduced competition in markets threatened by entry. Aiming to fill this gap this work evaluates the extent of a threat potential competitors are in terms of price and quantity supplied. We used the bankruptcy of Avianca, the fourth-largest airline in the Brazilian airline sector as a case study. We find evidence the main incumbents respond with a price increase. When analyzing the quantity supplied, we find no evidence of an incumbent response regarding the number of flights or the number of seats.

Keywords: Threat; Potential competition; Exit; Bankruptcy; Airline companies; Tariffs airlines (search for similar items in EconPapers)
JEL-codes: L13 L43 L93 (search for similar items in EconPapers)
Date: 2024-02-16
New Economics Papers: this item is included in nep-com, nep-ind, nep-reg and nep-tre
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