Credible vs. deceptive threat of market entry: Empirical evidence from the US airline industry

Abstract

Defending a competitive position in established markets when faced with new entrants is a fundamental element of competitive business-to-business dynamics. Earlier studies showcase that the market entry threats posed by potential entrants (PEs) provoke incumbents' responses to deter PEs' entry. It is worth noting, though, that not all posed market entry threats are credible and deserve an appropriate response. Accordingly, assessing the credibility of a threat is a precursor to efficiently undertaking any deterrent strategy. Drawing on signaling theory, resource-based theory, and a dynamic capability view, we develop a framework for examining the characteristics of a credible market entry threat in well-established industries. We specifically investigate how PEs' and incumbents' resources and capabilities (R&Cs) can explain the credibility of PEs' entry threats. Additionally, the moderating effect of competitive history between PEs and incumbents was examined. To test the hypotheses, we used a multi-market dataset of PE threats in the context of the U.S. airline industry from 1997 to 2016. Findings reveal that entry threats are less credible when incumbents have strong R&Cs and are more credible when PEs and incumbents have a rich history of competition in the related industries. Moreover, a rich history of competition also means that the incumbents' R&Cs lose effectiveness in undermining the credibility of the entry threat. These findings contribute to the B2B marketing strategy literature and provide managers with actionable insights for developing defensive strategies.