Sources and Consequences of Competitive Inertia: A Study of the U.S. Airline Industry.

This paper investigates the causes and consequences of competitive inertia in the U.S. airline industry. Competitive inertia is defined as the level of activity that a firm exhibits when altering its competitive stance in areas such as pricing, advertising, new product or service introductions, and market scope. Inertia is argued to be driven by managers' incentives to act, their awareness of action alternatives, and the constraints on their capacity to act. These three sources of inertia were assessed, respectively, by past performance and market growth; by competitive experience and the diversity of the market environment; and by company age and size. We found that good past performance contributed to competitive inertia, whereas a diversity of markets discouraged it. Antecedents for inertia differed in tactical versus strategic actions, the former being driven more by performance and market diversity, the latter by growth in markets. These results suggest the operation of two distinct models of organizational learning, one reactive, the other experimental. Although inertia in strategic actions had mildly positive implications for near-term performance, the benefits from inertia in all kinds of actions diminished with increases in market diversity. [ABSTRACT FROM AUTHOR]