Do Incumbents Improve Service Quality in Response to Entry? Evidence from Airlines’ On-Time Performance
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.
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- Ben-Akiva, Moshe & de Palma, Andre & Thisse, Jacques-Francois, 1989.
"Spatial competition with differentiated products,"
Regional Science and Urban Economics,
Elsevier, vol. 19(1), pages 5-19, February.
- BEN-AKIVA, Moshe & DE PALMA, André & THISSE, Jacques-François, "undated". "Spatial competition with differentiated products," CORE Discussion Papers RP 845, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- BEN-AKIVA, M. & de PALMA, A. & THISSE, J.-F., 1985. "Spatial competition with differentiated products," CORE Discussion Papers 1985017, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
- d'ASPREMONT, Claude & GABSZEWICZ, Jean J. & THISSE, Jacques-François, "undated". "On Hotelling's "Stability in competition"," CORE Discussion Papers RP 385, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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