Price reactions to a rival’s market exit: evidence from the U.S. airline industry
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Sina Aghaie, Amir Javadinia & Seth A. Cockrell (2022) Price reactions to a rival’s market exit: evidence from the U.S. airline industry, Journal of Marketing Theory and Practice, DOI: 10.1080/10696679.2021.2008802
While antecedents of a rival’s exit have been extensively investigated, how a rival’s exit affects the market has been barely examined. Drawing on the contestable market theory, and utilizing a rich dataset of market exits in the airline industry, the authors investigate how incumbents respond to a rival’s exit by adjusting their prices. Contrary to widespread expectations, incumbents cut prices by 7% as soon as the rival leaves the market and keep their prices lower than the pre-exit level up to eight quarters afterward. The authors discuss the contributions to the marketing literature and provide actionable insights to managers and policymakers.
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