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.
Highlights We study incumbents’ responses to entry in market with quality differentiation. For the closer substitute to the entering product, no price response is observed. Only the weaker substitute for the entering product shows a price response. Connecting incumbents also reroute their flights to airports less likely to be hubs. This response is due to the opportunity cost of connecting at desirable airports.
Incumbents’ pricing and nonpricing responses to entry in vertically differentiated markets
2022-08-03
Aufsatz (Zeitschrift)
Elektronische Ressource
Englisch
Responses to differentiated road pricing schemes
Online Contents | 2013
|Responses to differentiated road pricing schemes
Elsevier | 2012
|How do Incumbents Respond to the Threat of Entry? Evidence from the Major Airlines
TIBKAT | 2005
|