WEBJET’S COMPETITIVE STRATEGY FROM A GAME THEORY PERSPECTIVE

Jean Max Tavares,Humberto Elias Garcia Lopes

doi:10.7213/rebrae.10.001.ao07

Abstract

The Brazilian commercial aviation market has undergone several changes over the past decade with the entry of GOL Airlines (1999) and the exit of firms such as TRANSBRASIL, VARIG and VASP. In 2005, WEBJET obtained a concession for regular public transport, but faced a price war with the traditional companies, coming to suspend its operations less than six months later. Regarding these events, this article aims to show how the reaction of incumbent firms was to the entry of WEBJET into the marketplace, by using Game Theory and the support of the literature on barriers to entry. Through the creation and the resolution of a Dynamic Game of Complete and Imperfect Information, it has been found that WEBJET seems to have underestimated the reaction of the incumbent firms like GOL and TAM, as well as the degree of passengers´ loyalty to the incumbent firms.

Highlights

Several events have justified the emergence of research involving the aviation industry in Brazil (Oliveira et al, 2006; Miotto et al, 2008; Sampaio Melo, 2008; Oliveira, 2009; Camilo Pereira, 2010; Tadeu Silva, 2011; Santos et al 2013; Melo Filho et al, 2015; Pacheco et al, 2015), namely: a) the bankruptcy of large companies, such as TRANSBRASIL, VASP and VARIG (Helms, 2010); b) the fact that national companies can only operate in domestic markets; c) the concession system that exists “of being awarded”, rather than auctioned by the Government; and d) two major airlines GOL and TAM - have together over 75% of the market share – with the airline AZUL holding 16.7%, in third place (ANAC, 2013)
The problems of research for this article has been to identify what would have been the readings of the marketplace made by WEBJET, before starting its operations, both in relation to the prices charged by the companies of GOL and TAM, as well as the degree of loyalty of their customers, in a market that is characterized by asymmetric information (Church & Ware, 2000)
This should have been achieved through the framework of Game Theory, which was used by Bresnahan and Reiss (1990, 1991), in order to examine the effects of the entry of smaller airlines into the Brazilian capital market powers

Summary

Introduction

Several events have justified the emergence of research involving the aviation industry in Brazil (Oliveira et al, 2006; Miotto et al, 2008; Sampaio Melo, 2008; Oliveira, 2009; Camilo Pereira, 2010; Tadeu Silva, 2011; Santos et al 2013; Melo Filho et al, 2015; Pacheco et al, 2015), namely: a) the bankruptcy of large companies, such as TRANSBRASIL, VASP and VARIG (Helms, 2010); b) the fact that national companies can only operate in domestic markets; c) the concession system that exists “of being awarded”, rather than auctioned by the Government; and d) two major airlines GOL and TAM - have together over 75% of the market share – with the airline AZUL holding 16.7%, in third place (ANAC, 2013). The problems of research for this article has been to identify what would have been the readings of the marketplace made by WEBJET, before starting its operations, both in relation to the prices charged by the companies of GOL and TAM, as well as the degree of loyalty of their customers, in a market that is characterized by asymmetric information (Church & Ware, 2000).

Objectives

Results

Conclusion