price war(PDF 36页)

ABSTRACT The research presented in this paper focuses on the recent onset of price
wars in the airline industry while accommodating multimarket contact, multiple products,
and a dramatic price distribution. An important innovation in this study is in developing
a price war definition using a rank dominance criterion. A second innovation is the
extension of a probit model to a bivariate probit, which assesses the behavior of
multimarket firms after a price war occurs. In particular, a carrier may choose to stay
and fight when a price war erupts or may simply leave a route. Carriers will engage in
fare wars when market shares change, higher elasticity customers patron the route, and
load factors drop. Carrier will leave routes after a fare war when offering service to
another carrier’s hub but will remain steadfast in their own spheres of influence.
Keywords: Price Wars, Airline Industry Studies, Multimarket Contact
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