Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

A Member of the Law Professor Blogs Network

Friday, April 1, 2011

How do Incumbents Fare in the Face of Increased Service Competition?

Posted by D. Daniel Sokol

Ryan W. Buell, Harvard Business School, Dennis Campbell, Harvard Business School, and Frances X. Frei, Harvard Business School ask How do Incumbents Fare in the Face of Increased Service Competition?

ABSTRACT: We explore the conditions under which service competition leads to customer defection from an incumbent and which customers are most vulnerable to its effects. We find that customers defect at a higher rate from the incumbent following increased service competition only when the incumbent offers high quality service relative to existing competitors in a local market. We provide evidence that this result is due to a sorting effect whereby the incumbent attracts service (price) sensitive customers in markets where it has supplied relatively high (low) levels of service quality in the past. Furthermore, we show that it is the high quality incumbent’s most valuable customers, those with the longest tenure, most products, and highest balances, who are the most vulnerable to superior service alternatives. Along the way, we also show that firms trade-off price and service quality and that when the incumbent offers relatively low service quality in a local market, it is susceptible to the entry or expansion of inferior service (price) competitors. Our results appear to have long run implications whereby sustaining a high level of service relative to local competitors leads the incumbent to attract and retain higher value customers over time.

http://lawprofessors.typepad.com/antitrustprof_blog/2011/04/how-do-incumbents-fare-in-the-face-of-increased-service-competition.html

| Permalink

TrackBack URL for this entry:

http://www.typepad.com/services/trackback/6a00d8341bfae553ef0147e2f3c653970b

Listed below are links to weblogs that reference How do Incumbents Fare in the Face of Increased Service Competition?:

Comments

Post a comment