Fight or flight? Market positions, submarket interdependencies, and strategic responses to entry threats

Ethiraj, S K and Zhou, M Y (2019) Fight or flight? Market positions, submarket interdependencies, and strategic responses to entry threats. Strategic Management Journal, 40. pp. 1545-1569. ISSN 0143-2095

Abstract

This paper examines how incumbent firms’ market positions and interdependencies across their submarkets influence their response to the threat of entry. 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 response. 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.

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Item Type: Article
Subject Areas: Strategy and Entrepreneurship
Additional Information:

© 2019 John Wiley & Sons, Inc. This is the peer reviewed version of the following article: Ethiraj, S, Zhou, YM. Fight or flight? Market positions, submarket interdependencies, and strategic responses to entry threats. Strat Mgmt J. 2019; 40: 1545– 1569 which has been published in final form at https://doi.org/10.1002/smj.3044. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.

Subjects: M > Market structure
A > Air transport
Date Deposited: 10 May 2019 15:52
Last Modified: 22 Jan 2020 02:28
URI: http://lbsresearch.london.edu/id/eprint/1123
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