Liberalizing Europe's Skies A Failure? An Analysis of Airline Entry and Exit in the Post-liberalized German Airline Market, 1993-2006
(Sprache: Englisch)
The study examines actual entry and exit dynamics in the German airline market in light of the European liberalization process. For this purpose, flight schedules data was used to derive entry and exit statistics for a set of chosen inner-German routes over...
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The study examines actual entry and exit dynamics in the German airline market in light of the European liberalization process. For this purpose, flight schedules data was used to derive entry and exit statistics for a set of chosen inner-German routes over a period of thirteen years. Data was analysed in cross-sectional and longitudinal manner while identifying different entry waves and examining incumbent behaviour with respect to entry deterrence strategies. Furthermore, the market s concentration and structure was tracked to allow a conclusion with respect to the market s contestability after liberalization. The results suggest the existence of remaining structural barriers to entry and depict a rather unsatisfactory overall state of the post liberalized market.
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Chapter 3.1, What do we know about entry?Theoretical and empirical research has already long analysed the drivers, effects and deterrents of entry. Moreover, actual patterns of entry, survival and exit have been studied and stylized facts could be derived from both theoretical and empirical work. Geroski (1995) provided a brief survey on entry research within which he summarized empirical work as a series of several stylized facts that will be recapitulated briefly:
As a result of the research conducted so far, it has become common knowledge that market entry is no rare phenomenon, in fact, large numbers of firms enter most markets in most years . However, entry rates highly exceed market penetration rates. Moreover, entry and exit rates are highly positively correlated, as for example Dunne, Roberts and Samuelson (1988) have shown within their analysis of firm entry and exit patterns across a large sample of plant-level data, aggregated to the firm-level, for several U.S. manufacturing industries. Consequently, as net entry rates are only modest fractions of gross entry rates, the survival rate of most entrants is low. One reason is the fact that de novo entry , which is more common, is less successful. Dunne, Roberts and Samuelson found that entrants, differentiated into new entrants or diversifying entrants, which, in order to enter, do either need to invest in new inventory or not, differ substantially with respect to their probability of survival and the size of the surviving firms. Thereby, small, young firms have the highest failure rates. However, entry on a large-scale as well as very rapid post-entry penetration rates also seem to be penalized by costs of adjustment. With respect to entry drivers and deterrents, empirical studies allowed for a derivation of stylized results, some of which show that entry seems to react slowly to high profits, which might be explained partly by the fact that economic estimates of the height of entry barriers suggest that
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they are high .49 By contrast, Hilke (1984) proposed that growth is a better driver of entry. Hence, entry rates seem to be hard to explain using conventional measures of profitability and entry barriers , especially when trying to explain variations of entry over time.49 Yet, it is known that entry rates come in different waves, frequently containing different entrants, which often peak in the early phase of the life of a market. As for incumbent behaviour, empirical results show that incumbents tend to respond selectively to entry. Thereby, prices are rather unusually employed as entry-deterring strategy. In fact, the range of methods used to prevent entry such as limit or predatory pricing, advertising, capacity extensions or learning curve strategies as well as economies of scale and scope do not only appear to vary across industries but seem to be rather limited in use.
Main empirical findings on the determinants of firm entry and exit over the last thirty years, notably within the last decade, showed that limit pricing is among the least used entry deterrence strategies whereas advertising and R&D intensity are strong respectively moderate barriers to entry, as well as widely used. Also, economies of scale seem to constitute a significant barrier to entry thereby acting as substitute for entry deterrence strategies. As the required scale of entry increases, the rate of entry decreases. Subsequently, with a high minimum efficient size of entry, entry deterrence is less frequently necessary.51 Excess capacity, however, gives raise to divergent concepts. While empirical research mostly finds that excess capacity is both an insignificant barrier to entry and rarely used as entry deterrence strategy, several theoretical studies provided the basis for the use of excess capacity as a successful barrier to entry.
Chapter 3.2, Entry deterrence and dynamic competition:
Theoretical research proposed that excess capacity can act as a barrier to entry. Thereby, ex
Main empirical findings on the determinants of firm entry and exit over the last thirty years, notably within the last decade, showed that limit pricing is among the least used entry deterrence strategies whereas advertising and R&D intensity are strong respectively moderate barriers to entry, as well as widely used. Also, economies of scale seem to constitute a significant barrier to entry thereby acting as substitute for entry deterrence strategies. As the required scale of entry increases, the rate of entry decreases. Subsequently, with a high minimum efficient size of entry, entry deterrence is less frequently necessary.51 Excess capacity, however, gives raise to divergent concepts. While empirical research mostly finds that excess capacity is both an insignificant barrier to entry and rarely used as entry deterrence strategy, several theoretical studies provided the basis for the use of excess capacity as a successful barrier to entry.
Chapter 3.2, Entry deterrence and dynamic competition:
Theoretical research proposed that excess capacity can act as a barrier to entry. Thereby, ex
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Autoren-Porträt von Nicole Petrick-Felber
Nicole Petrick-Felber studied Business and Economics at Humboldt University of Berlin, the Higher School of Economics in Moscow and ESCP Europe in Paris. She holds a Master s Degree in Economics and Management Science from Humboldt University of Berlin and works as a management consultant.
Bibliographische Angaben
- Autor: Nicole Petrick-Felber
- 2014, Erstauflage, 128 Seiten, Masse: 15,5 x 22 cm, Kartoniert (TB), Englisch
- Verlag: Anchor Academic Publishing
- ISBN-10: 3954892693
- ISBN-13: 9783954892693
Sprache:
Englisch
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