Incumbent Advertising Response to Market Entry: Exploring the Effect of Switching Costs in the Spanish Domestic Airline Sector

Growing overall competition, derived from both regulatory and structural changes, has promoted the study of incumbent reaction to market entry. Recently, the rise in low cost entry sector wide, has generalized incumbent advertising competition. our paper analyzes the role of switching costs on incumbent advertising reaction in the airline sector, as well as the asymmetric response among entrants. The instrumental variable estimations, of a Spanish domestic sample of reactions for the 2000-2009 period, support the moderating effect of switching cost on advertising response as well as the presence of asymmetric response and the relevance of incumbent dominance.