Incumbent defense strategies and new entrants market exit: the moderating role of relational market-based assets
ISSN: 0309-0566
Article publication date: 13 May 2022
Issue publication date: 24 May 2022
Abstract
Purpose
The purpose of this study is to empirically investigate the impact of incumbents’ defensive strategies, specifically price-cut and capacity expansion, on new entrants’ (NEs) exit decisions and examine the moderating role of incumbents’ relational market-based assets (RMBAs).
Design/methodology/approach
Drawing upon real options theory, an empirical study using logistic regression is conducted on a rich, multi-market data set of NE exits between 1997 and 2019 in the U.S. airline industry.
Findings
Contrary to intuitive expectation, the results show that cutting prices in response to entry reduces NEs’ likelihood of market exit. However, when incumbents possess strong RMBAs, using a price cut proves to be effective in pushing NEs out of a market. Moreover, an NEs’ exit likelihood is higher when incumbents expand capacities in response to entry.
Research limitations/implications
In this study, market exit is defined as a complete withdrawal from the market and operationalized as a binary variable. Future research could examine different degrees of downscaling by NEs while remaining in the market.
Practical implications
This research demonstrates the opposing effects of price-cut and capacity expansion and the crucial role of RMBAs and advises managers to be cautious and consider trade-offs when implementing their defensive strategies to push NEs out of their markets.
Originality/value
This study contributes to the literature by examining the impact of incumbents’ defensive strategies, price-cut and capacity expansion, side by side and exploring the moderating role of RMBAs. Extant research has focused on antecedents of defensive strategies, whereas the consequences are the focus of this research.
Keywords
Acknowledgements
The authors would like to thank professor Charles H. Noble (University of Tennessee) for his valuable comments, which have significantly improved the quality of the research.
Citation
Aghaie, S., Kamran-Disfani, O., Javadinia, A., Farhang, M. and Bhattarai, A. (2022), "Incumbent defense strategies and new entrants market exit: the moderating role of relational market-based assets", European Journal of Marketing, Vol. 56 No. 5, pp. 1556-1583. https://doi.org/10.1108/EJM-02-2021-0087
Publisher
:Emerald Publishing Limited
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