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

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  • Jeffrey T. Prince

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

  • Daniel H. Simon

    (School of Public and Economic Affairs, Indiana University)

Abstract

We 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.

Suggested Citation

  • Jeffrey T. Prince & Daniel H. Simon, 2010. "Do Incumbents Improve Service Quality in Response to Entry? Evidence from Airlines’ On-Time Performance," Working Papers 2010-15, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  • Handle: RePEc:iuk:wpaper:2010-15
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    3. Chen, Yongmin & Gayle, Philip G., 2019. "Mergers and product quality: Evidence from the airline industry," International Journal of Industrial Organization, Elsevier, vol. 62(C), pages 96-135.
    4. Brueckner, Jan K. & Czerny, Achim I. & Gaggero, Alberto A., 2021. "Airline mitigation of propagated delays via schedule buffers: Theory and empirics," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 150(C).
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    6. Eufrásio, Ana Beatriz R. & Eller, Rogéria A.G. & Oliveira, Alessandro V.M., 2021. "Are on-time performance statistics worthless? An empirical study of the flight scheduling strategies of Brazilian airlines," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 145(C).
    7. Tan, Xinlong & Jia, Rongwen & Yan, Jia & Wang, Kun & Bian, Lei, 2021. "An Exploratory analysis of flight delay propagation in China," Journal of Air Transport Management, Elsevier, vol. 92(C).
    8. Lange, Anne, 2019. "Does cargo matter? The impact of air cargo operations on departure on-time performance for combination carriers," Transportation Research Part A: Policy and Practice, Elsevier, vol. 119(C), pages 214-223.
    9. Robert Seamans & Feng Zhu, 2014. "Responses to Entry in Multi-Sided Markets: The Impact of Craigslist on Local Newspapers," Management Science, INFORMS, vol. 60(2), pages 476-493, February.
    10. Roucolle, Chantal & Seregina, Tatiana & Urdanoz, Miguel, 2020. "Network development and excess travel time," Transport Policy, Elsevier, vol. 94(C), pages 139-152.
    11. Hanming Fang & Long Wang & Yang Yang, 2020. "Competition and Quality: Evidence from High-Speed Railways and Airlines," PIER Working Paper Archive 20-022, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
    12. Bet, Germán, 2021. "Product specification under a threat of entry: Evidence from Airlines’ departure times," International Journal of Industrial Organization, Elsevier, vol. 75(C).
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    15. Chao Ma, 2019. "Does capital structure differently affect incumbents' responses to entry threat and actual entry?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(4), pages 585-613, November.

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