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Ownership and pricing response to entry

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  • Liu, Zexuan

Abstract

I explore state-owned and privately-owned incumbents’ differential pricing responses to low cost carrier (LCC) entry in the international airline market. I find that privately-owned incumbents substantively cut prices in response to LCC entry, whereas state-owned incumbents do not. The differential responses of state-owned vs. privately-owned is more considerable on the slot-restricted routes, where incumbents have monopolistic power. In addition, Chinese airlines and Gulf carriers who are aggressively expanding behave differently from other state-owned carriers.

Suggested Citation

  • Liu, Zexuan, 2020. "Ownership and pricing response to entry," Economics Letters, Elsevier, vol. 186(C).
    • Handle: RePEc:eee:ecolet:v:186:y:2020:i:c:s0165176519304276
    DOI: 10.1016/j.econlet.2019.108843
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    References listed on IDEAS

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    1. Daniel Simon, 2005. "Incumbent pricing responses to entry," Strategic Management Journal, Wiley Blackwell, vol. 26(13), pages 1229-1248, December.
    2. Austan Goolsbee & Chad Syverson, 2008. "How Do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(4), pages 1611-1633.
    3. Paul H. Malatesta & Kathryn L. DeWenter, 2001. "State-Owned and Privately Owned Firms: An Empirical Analysis of Profitability, Leverage, and Labor Intensity," American Economic Review, American Economic Association, vol. 91(1), pages 320-334, March.
    4. Sutirtha Bagchi & Jagadeesh Sivadasan, 2017. "Barriers to Entry and Competitive Behavior: Evidence from Reforms of Cable Franchising Regulations," Journal of Industrial Economics, Wiley Blackwell, vol. 65(3), pages 510-558, September.
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    More about this item

    Keywords

    Firm ownership; Pricing response; Incumbent;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise

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