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Incumbent Response to Entry by Low‐Cost Carriers in the U.S. Airline Industry
Author(s) -
Tan Kerry M.
Publication year - 2016
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/soej.12117
Subject(s) - low cost carrier , competition (biology) , percentile , barriers to entry , industrial organization , price dispersion , distribution (mathematics) , business , economics , dispersion (optics) , microeconomics , market structure , marketing , physics , statistics , ecology , mathematical analysis , mathematics , biology , optics
This article studies incumbent price response to entry by low‐cost carriers in the U.S. airline industry. I find that legacy carrier incumbents decrease their mean airfare, 10th percentile airfare, and 90th percentile airfare following entry by a low‐cost carrier. Airfares decrease by a larger percentage at the right tail of the incumbents’ price distribution than at the left tail, suggesting that increased competition from low‐cost carrier entrants leads to lower price dispersion.