Conventional wisdom says that when competition increases, prices go down.
In the airline industry, something unexpected also happens when a low-cost carrier enters a market to challenge big network airlines.
According to a new study from Indiana University's Kelley School of Business, increased competition from low-cost airlines seems to lower the on-time performance of the big airlines.
“As much as more competition means lower prices, it is not as clear that the same is true with quality,” said Jeff Prince, co-author of the report and associate professor of business economics at the school.
The report looked at what happened after low-cost carrier Southwest Airlines either entered or threatened to enter a market. The authors looked at 275 such examples from 1993 to 2005.
They found that Southwest’s competitors had a higher percentage of flights at least 15 minutes late, Prince said. The rate of late flights jumped 3.2 percentage points.
Why? The study did not focus on finding a reason for the drop, but Prince guessed that Southwest’s competitors had to cut back on other aspects of their service — such as on-time performance — in order to compete with Southwest on price.
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