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Indiana University Bloomington

Doctoral Programs

1960 Notable

From 1960-2013, we prepared nearly 1,200 men and women
for rewarding academic careers — that’s more than any other university.

Journal Articles

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

2014, forthcoming Management Science

Jeffrey T. Prince, Daniel Simon

Abstract

We examine if and how incumbent firms respond to entry and entry threats using non-price modes of competition. Our analysis focuses on airline service quality. We find that incumbent on-time performance (OTP) actually worsens in response to entry, and even entry threats, by Southwest Airlines. Since Southwest is both a top-performing airline in OTP and a low-cost carrier (LCC), we conjecture that this response by incumbents may be due to a cost-cutting strategy that allows for intense post-entry price competition along with pre-entry deterrence, or it may be due to a post-entry differentiation strategy along with pre-entry accommodation. Further analysis of entry and entry threats by other airlines is inconclusive, providing evidence that is partially consistent with both hypotheses. Nonetheless, the phenomenon of worsening OTP can only be observed when the (potential) entrant is a LCC (Southwest, Jet Blue, and AirTran).

Citation

Prince, Jeff and Daniel Simon (2014), “Do Incumbents Improve Service Quality in Response to Entry: Evidence from Airlines’ On-Time Performance,” Management Science, forthcoming.