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

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  • Rafael Rocha Oliveira
  • Claudio Lucinda

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.

Suggested Citation

  • Rafael Rocha Oliveira & Claudio Lucinda, 2024. "How do incumbents react to the exit of a potential competitor? Evidence from the airline sector," Working Papers, Department of Economics 2024_04, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2024wpecon4
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    File URL: http://www.repec.eae.fea.usp.br/documentos/Oliveira_Lucinda_04WP.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Threat; Potential competition; Exit; Bankruptcy; Airline companies; Tariffs airlines;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation

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