How incumbents? response strategy impacts rivals? market exit timing

Prior research illustrates that incumbent firms commonly react to a rival's market entry by adjusting their marketing mix elements. Incumbents either adjust only one element - adopting a focused strategy - or adjust several elements simultaneously- adopting a combinative strategy. While previous studies have extensively investigated the incumbents' marketing mix reactions to a market entry, no study has explored the defensive response strategy, and its consequences have yet to be empirically examined. Drawing upon signaling theory and using a multi-market dataset in the U.S. airline industry, the authors find that, compared to a combinative strategy, adopting a focused response strategy in response to a rival's entry does shorten the new entrant's exit timing. However, when incumbents possess high resource and capabilities, this performance gap between the two response strategies is reduced. The authors discuss the contributions to the strategy and management literature and provide actionable insights to managers and policymakers.

Automated summary

This study examines how incumbent firms react to a rival's market entry and finds that adopting a focused response strategy can shorten the new entrant's exit timing. However, the performance gap between the two strategies is reduced when incumbents possess high resources and capabilities.