COLLABORATIVE DYNAMICS AMONG MARKET INCUMBENTS IN THE US AIRLINE INDUSTRY, 1989–2010

Abstract

In this study, we develop understanding of factors that shape the propensity of market incumbents to collaborate in response to the threat posed by new market entrants. We are particularly interested in instances when a market’s competitive structure becomes unsettled by new entrants who engage in nonconforming strategic tactics. In such situations, we propose two factors – strategic similarity among competitors and market-share instability – will systematically shape competitors’ collaborative response to new entrants. To test our theory, we use data on strategic tactics and collaborative dynamics in the US airline industry from 1989 to 2010. We demonstrate that greater strategic similarity among a market’s incumbents increases the likelihood of cooperation in response to the threat of a nonconforming new entrant, while greater market-share instability reduces cooperative response. Through this study, we extend existing understanding of the contextual circumstances under which established competitors recognize their mutual interests and band together.