| Abstract: |
Low cost carriers (LCCs) have recently proved that they can develop aggressive
behaviour towards the threat of new entrants. This paper analyses the
theoretical conditions under which a low cost carrier can deter or accommodate
entry by means of product proliferation, using the example of Easyjet on the
London-Grenoble route. Theoretical conclusions show that they can only deter
entry if they launch a service with a quality that is superior to the
entrant’s and to their own previous one. Otherwise, they accommodate entry by
improving their old product, when they face the entry of a full service
carrier (FSC), or by launching a new service, if they are caught in the middle
of a FSC and another LCC. Empirical findings about competition in the same
route in monopoly, duopoly and oligopoly with three firms show that price
competition depends on the existence and nature of rivals, and on the level of
demand. |