Strategic Responses to Competitive Threats: Airlines in Action

Firms compete with each other in numerous ways, but particularly interesting are the various ways in which they respond to competitive threats to their critical assets and operations. Firms may mount vigorous defenses, or they may launch offensive strategies—by some definitions perhaps even predatory—or they may do nothing at all. This paper takes a selective empirical approach to analyzing such actions. We examine one industry—airlines—and two carriers—United and US Airways—and analyze their price and capacity strategies when confronted by entry on specific routes or by certain rivals. This approach limits exogenous variation while offering insights into the determinants of incumbents’ strategies, such as the identity of the entrant, the likely prospects for driving it out, the nature of airport or route competition, and so forth.