(cont.) the essential factors affecting traditional measures of airline performance following low-fare entry. Our simulation results show that these measures are greatly affected by the entrant's capacity relative to the incumbent, by the incumbent carrier's competitive pricing response, and by the competitive revenue management situation. For example, average fares on the incumbent carrier can either increase or decrease following entry by a new competitor, depending on whether one or both airlines perform revenue management. In an extension of the simulations to a larger network environment, it is also shown that network flows of passengers affect the performance of all competitors, as measured by aggregate measures of performance. Furthermore, use of advanced network revenue management allows the incumbent carriers to rely on connecting passengers to mitigate the effect of entry on network revenues, but leads to amplified effects at the local market level. Consequently, this research establishes that traditional aggregate measures of airline performance on their own do not constitute a reliable indication of the response of incumbent carriers, and provide even less information on their strategic intent, which is critical in identifying predation. This research also demonstrates the relationships between aggregate measures of performance and previously overlooked factors including relative entrant capacity, competitive pricing and revenue management, and flows of network passengers.
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