How do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines

Austan Goolsbee and Chad Syverson
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Austan Goolsbee: University of Chicago Graduate School of Business, American Bar Foundation, and National Bureau of Economic Research

The Quarterly Journal of Economics, 2008, vol. 123, issue 4, pages 1611-1633

Abstract: We examine how incumbents respond to the threat of entry by competitors (as distinct from how they respond to actual entry). We look specifically at passenger airlines, using the evolution of Southwest Airlines' route network to identify particular routes where the probability of future entry rises abruptly. We find that incumbents cut fares significantly when threatened by Southwest's entry. Over half of Southwest's total impact on incumbent fares occurs before Southwest starts flying. These cuts are only on threatened routes, not those out of non-Southwest competing airports. The evidence on whether incumbents are seeking to deter or accommodate entry is mixed. (c) 2008 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..

Date: 2008
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Working Paper: How Do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines (2004)
Working Paper: How do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines (2005)
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