Incumbent Responses to Lower Cost Entry: Evidence from the U.S. Airline Industry

Ito, Harumi; Lee, Darin

doi:10.2139/ssrn.724161

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Incumbent Responses to Lower Cost Entry: Evidence from the U.S. Airline Industry

Brown University Department of Economics Paper No. 2003-22

27 Pages Posted: 18 May 2005

See all articles by Harumi Ito

Harumi Ito

National Bureau of Economic Research (NBER)

Darin Lee

Law and Economics Consulting Group (LECG), LLC; Compass Lexecon

Date Written: December 11, 2003

Abstract

This paper analyzes the responses of incumbent hub-and-spoke carriers to low cost carrier (LCC) entry on routes served to and from their hubs over the past decade. Our analysis finds that the typical price and capacity response by incumbent hub-and-spoke carriers to LCC entry has been fairly accommodating. Moreover, our analysis also finds - somewhat surprisingly - that the likelihood of an LCC's entry into a hub market being successful is unrelated to the relative response of the incumbent.

Keywords: Airlines, Entry, Exit, Accommodation, Predation

JEL Classification: L11, L93

Suggested Citation: Suggested Citation

Ito, Harumi and Lee, Darin N. and Lee, Darin N., Incumbent Responses to Lower Cost Entry: Evidence from the U.S. Airline Industry (December 11, 2003). Brown University Department of Economics Paper No. 2003-22, Available at SSRN: https://ssrn.com/abstract=724161 or http://dx.doi.org/10.2139/ssrn.724161