Dynamic Effect of Low-Cost Entry on the Conduct Parameter: An Early-Stage Analysis of Southwest Airlines and America West Airlines

摘要

The purpose of this research is to investigate the dynamic changes in the competition between air carriers by applying a revised conduct parameter method. We examine the cases of Southwest Airlines and America West Airlines due to the availability of data. Our interests are in what fashion a low-cost carrier entered the market, how the rival reacted, and whether the fashions of competition between two types of air carrier remained stable as time passed. Our empirical results show that the fashions of competition fell between Cournot and “P = MC” competition, and competitive fashions were sometimes stable but sometimes not.