Do Incumbents Improve Service Quality in Response to Entry? Evidence from Airlines' On-Time Performance

Jeffrey Prince and Daniel H. Simon ()
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Daniel H. Simon: School of Public and Environmental Affairs, Indiana University, Bloomington, Indiana 47405

Management Science, 2015, vol. 61, issue 2, 372-390

Abstract: We examine if and how incumbent firms respond to entry and entry threats using nonprice modes of competition. Our analysis focuses on airline service quality. We find that incumbent on-time performance (OTP) actually worsens in response to entry, and even entry threats, by Southwest Airlines. Since Southwest is both a top-performing airline in OTP and a low-cost carrier (LCC), we conjecture that this response by incumbents may be due to a cost-cutting strategy that allows for intense postentry price competition along with preentry deterrence, or it may be due to a postentry differentiation strategy along with preentry accommodation. Further analysis of entry and entry threats by other airlines is inconclusive, providing evidence that is partially consistent with both hypotheses. Nonetheless, the phenomenon of worsening OTP can only be observed when the (potential) entrant is a LCC (Southwest, Jet Blue, and AirTran).Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2014.1918 . This paper was accepted by by Bruno Cassiman, business strategy .

Keywords: on-time performance; airlines; quality competition; entry; entry threat (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (38)

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http://dx.doi.org/10.1287/mnsc.2014.1918 (application/pdf)

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Working Paper: Do Incumbents Improve Service Quality in Response to Entry? Evidence from Airlines’ On-Time Performance (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:61:y:2015:i:2:p:372-390

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