Effects of Southwest Airlines on Carrier Profits and Entry Probabilities

This paper studies the effects of Southwest Airlines, largest low-cost carrier (LCC) in U.S., on other carriers’ payoff functions and entry probabilities. A static game model is developed estimated by viewing as an indicator underlying profitability making use Nash Equilibrium. Results indicate that has a remarkable negative impact payoffs carriers. firm-specific, with LCCs being more affected than full-service carriers (FSCs). Comparing two service types, results show Southwest’s nonstop presence apparently imposes downward pressure opponents’ profits its connecting presence. counterfactual experiment then conducted. Once counterfactually removed, probability each entering market significantly changes. examines impacts from new perspective extends literature estimation.