Rafael da Rocha Oliveira
Master's – How Do Airlines Respond to the Exit of a Potential Competitor: The Avianca Brasil case
Advisor: Prof. Dr. Cláudio Ribeiro de Lucinda
Comission: Profs. Drs. Rodrigo Menon Simões Moita, Alessandro Vinícius Marques de Oliveira and Humberto Filipe de Andrade J. Bettini
Little attention has been given in the literature to the effects of a potential competitor’s exit. Studies that analyze firms’ exit usually address the incumbent’s response in the markets directly affected by the exit, and do not explore the indirect effects of competition reduction in markets where there was a threat of entry. Seeking to fill this gap, this paper evaluates the incumbent’s response when the entry threat is withdrawn, both in terms of price and quantity offered. In this regard, the Brazilian passenger air transport market on scheduled domestic flights is analyzed, and the exit of Avianca Brazil, the 4th largest airline in the sector, is explored. As a result, evidence was found that the main incumbents respond with price increases. In the routes in which Avianca first withdraw operation and then withdraw threat, it was possible to distinguish the impacts resulting from these two events, and a large part of the observed price increase occurs with the withdrawal of the threat. On routes where there was no operation prior to the withdrawal of the threat, a significant price increase was also observed in response to the withdrawal of the threat. However, when analyzing the quantity offered, there was no evidence of response by the incumbents in terms of number of flights or number of seats offered. Thus, this study seeks to contribute to a better understanding of business strategies and the effects of reduction on competition.
*Abstract provided by the author