Fight or Flight? Market Positions, Submarket Interdependencies, and Strategic Responses to Entry Threats

Strategic Management Journal, Forthcoming

42 Pages Posted: 6 May 2019 Last revised: 16 May 2019

See all articles by Sendil K. Ethiraj

Sendil K. Ethiraj

University of Michigan - Stephen M. Ross School of Business

Yue Maggie Zhou

University of Michigan, Stephen M. Ross School of Business

Date Written: May 16, 2019

Abstract

This paper examines how incumbent firms’ market positions and interdependencies across their submarkets influence their responses to entry threats. We adapt a model of capacity deterrence to show that because premium and low-cost incumbents face different demand functions and operating costs, they experience different tradeoffs between ignoring, deterring, and accommodating threatened entry. In addition, the interdependencies within and between a premium incumbent’s submarkets influence its responses. Using data on incumbent responses to entry threats from Southwest Airlines between 2003 and 2012, we find that (1) full-service incumbents expanded capacity while low-cost incumbents did not respond significantly, and (2) full-service incumbents expanded capacity less aggressively in submarkets that had less substitutable customer segments and submarkets that were more complementary with their unthreatened submarkets.

Keywords: market position, interdependence, competitive interaction, entry deterrence, airlines

Suggested Citation

Ethiraj, Sendil K. and Zhou, Yue Maggie, Fight or Flight? Market Positions, Submarket Interdependencies, and Strategic Responses to Entry Threats (May 16, 2019). Strategic Management Journal, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3371319

Sendil K. Ethiraj

University of Michigan - Stephen M. Ross School of Business ( email )

701 Tappan Street
R4442
Ann Arbor, MI 48109
United States
734-764-1230 (Phone)

Yue Maggie Zhou (Contact Author)

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI 48109
United States

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