How incumbents’ response strategy impacts rivals’ market exit timing?

Abstract

Prior research illustrates that incumbent firms commonly react to a rival’s market entry by adjusting their marketing mix elements. Incumbents either adjust only one element – adopting a “focused” strategy – or adjust several elements simultaneously– adopting a “combinative” strategy. While previous studies have extensively investigated the incumbents’ marketing mix reactions to a market entry, no study has explored the defensive response strategy, and its consequences have yet to be empirically examined. Drawing upon signaling theory and using a multi-market dataset in the U.S. airline industry, the authors find that, compared to a combinative strategy, adopting a focused response strategy in response to a rival’s entry does shorten the new entrant’s exit timing. However, when incumbents possess high resource and capabilities, this performance gap between the two response strategies is reduced. The authors discuss the contributions to the strategy and management literature and provide actionable insights to managers and policymakers.