Entry deterrence due to brand proliferation: Empirical evidence from the German interurban bus industry

Abstract

We empirically study a potential entry deterrence strategy by means of product proliferation (pre-emption) in the German interurban bus industry using route-level data covering about 6,000 routes. In 2016, the largest operator, Flixbus, acquired its major rival, Postbus. We find that Flixbus, on average, provided a lower number of trips per route and day (frequency) and slightly decreased prices after the acquisition. Our findings are consistent with the interpretation that Flixbus pursued a strategy of pre-emption prior to the acquisition: Flixbus offered a high number of bus rides to decrease residual demand. After the acquisition, when the threat of entry was eliminated, Flixbus decreased the supply of trips per route and day. We would like to thank two anonymous referees and Frank Verboven for helpful comments and suggestions. We would also like to thank Niklas Dürr, Georg Götz, Justus Haucap, Paul Heidhues, Sven Heim, Michael Hellwig, Henry Thecat, Peter Winker and the participants of the following conferences: EARIE Annual Conference 2018, VfS Annual Conference 2018, MaCCI Annual Conference 2019 and CRESSE Conference 2019 for fruitful discussions on earlier versions of this article.