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Incumbents’ pricing and nonpricing responses to entry in vertically differentiated markets

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  • Bauner, Christoph
  • Liu, Zexuan

Abstract

We investigate incumbents’ pricing and nonpricing responses to product entry in market with vertical product differentiation. Using data from international airline markets, we observe price reductions by connecting incumbents in response to high-quality (nonstop) entry. We also find evidence of product repositioning (increases in total itinerary distance) by connecting incumbents. However, we do not observe significant policy changes by incumbents offering nonstop flights. Additional evidence suggests that the reason for the response by connecting incumbents is the opportunity cost of connecting at desirable airports such as airline hubs.

Suggested Citation

  • Bauner, Christoph & Liu, Zexuan, 2022. "Incumbents’ pricing and nonpricing responses to entry in vertically differentiated markets," Journal of Air Transport Management, Elsevier, vol. 105(C).
    • Handle: RePEc:eee:jaitra:v:105:y:2022:i:c:s0969699722000989
    DOI: 10.1016/j.jairtraman.2022.102279
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    More about this item

    Keywords

    Entry response; Nonstop entry; International airline markets;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation

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