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Incumbent defense strategies and new entrants market exit: the moderating role of relational market-based assets

Sina Aghaie (Department of Marketing, Wichita State University, Wichita, Kansas, USA)
Omid Kamran-Disfani (Department of Marketing, Southern Illinois University Carbondale, Carbondale, Illinois, USA)
Amir Javadinia (Department of Marketing, Florida Atlantic University, Boca Raton, Florida, USA)
Maryam Farhang (Department of Marketing, Southern Illinois University Carbondale, Carbondale, Illinois, USA)
Ashok Bhattarai (Department of Marketing, Southern Illinois University Carbondale, Carbondale, Illinois, USA)

European Journal of Marketing

ISSN: 0309-0566

Article publication date: 13 May 2022

Issue publication date: 24 May 2022

418

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

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Emerald Publishing Limited

Copyright © 2022, Emerald Publishing Limited

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