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Threat of market entry and low cost carrier competition

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  • Aydemir, Resul

Abstract

The paper analyzes how US legacy carriers and Southwest Airlines respond to the threat of entry by AirTran Airways. It is found that that legacy carriers' ex post equilibrium prices are on average lower, whereas those of Southwest are on average higher in response to AirTran's threat of entry. Once AirTran actually flies the route, while the prices of legacy carriers fall further, those of Southwest don't change significantly. Hence, estimation results suggest that the pricing behavior of a low-cost incumbent is quite different from incumbent legacy carriers in response to not only actual but also potential competition by a low-cost carrier entrant.

Suggested Citation

  • Aydemir, Resul, 2012. "Threat of market entry and low cost carrier competition," Journal of Air Transport Management, Elsevier, vol. 23(C), pages 59-62.
    • Handle: RePEc:eee:jaitra:v:23:y:2012:i:c:p:59-62
    DOI: 10.1016/j.jairtraman.2012.01.018
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    References listed on IDEAS

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    1. Austan Goolsbee & Chad Syverson, 2008. "How Do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(4), pages 1611-1633.
    2. Glenn Ellison & Sara Fisher Ellison, 2011. "Strategic Entry Deterrence and the Behavior of Pharmaceutical Incumbents Prior to Patent Expiration," American Economic Journal: Microeconomics, American Economic Association, vol. 3(1), pages 1-36, February.
    3. Forsyth, Peter, 2003. "Low-cost carriers in Australia: experiences and impacts," Journal of Air Transport Management, Elsevier, vol. 9(5), pages 277-284.
    4. Steven Berry & Michael Carnall & Pablo T. Spiller, 1996. "Airline Hubs: Costs, Markups and the Implications of Customer Heterogeneity," NBER Working Papers 5561, National Bureau of Economic Research, Inc.
    5. Mitchell A. Petersen, 2009. "Estimating Standard Errors in Finance Panel Data Sets: Comparing Approaches," The Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 435-480, January.
    6. Inderst, Roman, 2002. "Why competition may drive up prices," Journal of Economic Behavior & Organization, Elsevier, vol. 47(4), pages 451-462, April.
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    Citations

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    Cited by:

    1. Resul Aydemir & Cihad Haytural, 2016. "The effects of low cost carrier entry in the Turkish Airline industry," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 6(1), pages 111-124, April.
    2. Kurt Sant, "undated". "An analysis of recent developments in Malta’s air connectivity," CBM Policy Papers PP/03/2020, Central Bank of Malta.
    3. Xiaowei Tang & Siyu Ren & Xinyao Ma & Kurt Fuellhart, 2022. "Borrowing Power from Potential Entrants and High-Speed Rail: Entry Pattern of China’s Low-Cost Carrier," Sustainability, MDPI, vol. 14(10), pages 1-16, May.
    4. Aaron Tham, 2016. "When Harry met Sally: different approaches towards Uber and AirBnB—an Australian and Singapore perspective," Information Technology & Tourism, Springer, vol. 16(4), pages 393-412, December.
    5. Lin, Hsiu-Fen & Huang, Yi-Wen, 2015. "Using analytic network process to measure the determinants of low cost carriers purchase intentions: A comparison of potential and current customers," Journal of Air Transport Management, Elsevier, vol. 49(C), pages 9-16.
    6. Lu, Hua-An & Mao, Yun-Ru, 2015. "Evaluation of airport conditions to attract foreign low cost carriers: A case study of Taiwan," Journal of Air Transport Management, Elsevier, vol. 42(C), pages 297-305.
    7. Valido, Jorge & Socorro, M. Pilar & Medda, Francesca, 2020. "Airport capacity and entry deterrence: Low cost versus full service airlines," Economics of Transportation, Elsevier, vol. 22(C).
    8. Jorge Valido & M. Pilar Socorro & Francesca Medda, 2013. "DYPES: Vertical differentiation, schedule delay and entry deterrence: Low cost vs. full service airlines," Working Papers 2013-05, FEDEA.

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