Competition and Firm Service Reliability Decisions: A Study of the Airline Industry
Chen Zhou, Paulo Albuquerque, Rajdeep Grewal
Journal of Marketing Research · 2021 · Volume 58 · Issue 2
Abstract
To understand the impact of competition on organizational service reliability decisions, this study investigates whether firms in the airline industry consider competitors’ actions when making their service reliability decisions. Using data from the U.S. Bureau of Transportation Statistics on flight cancellation rates and average length of flight delays, the authors use two complementary approaches, a simultaneous equation model and a discrete game framework, to examine competitive influence on firm decisions on the level of service reliability. The authors find that competitive effects are asymmetric and differ by the type of firm and its competitors—full-service versus low-cost airlines—as well by level of market concentration. The authors show that internal initiatives, such as on-time bonuses, can substantially improve service reliability but require the firm to account for competitive reactions. Ignoring competitive effects leads to an overestimation of the impact of these programs on service reliability levels.
Keywords
airline industry, cancellation rates, competition, flight delays, service reliability, simultaneous discrete game, simultaneous equation model
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