Do Incumbents Improve Service Quality in Response to Entry? Evidence from Airlines’ On-Time Performance
AbstractWe examine if and how incumbent firms respond to entry, and entry threats, using non-price modes of competition. Our analysis focuses on service quality within the airline industry. We find that incumbent on-time performance actually worsens in response to entry, and even entry threats, by Southwest Airlines. Given Southwest’s general superiority in on-time performance, this result is consistent with equilibria of theoretical models of quality and price competition, which generally predict differentiation along quality. We corroborate this intuition with further analysis, showing there is no notable response by incumbents when an airline with average on-time performance (Continental) threatens to enter or enters a route.
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Bibliographic InfoPaper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2010-15.
Date of creation: Sep 2010
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Find related papers by JEL classification:
- L0 - Industrial Organization - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-18 (All new papers)
- NEP-COM-2010-09-18 (Industrial Competition)
- NEP-URE-2010-09-18 (Urban & Real Estate Economics)
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