COMPETITIVE DYNAMICS OF INTERFIRM RIVALRY

In this study, we examined how firm-specific competitive conditions in fluence firms' patterns of market entry and exit, focusing on two feat ures of firms' competitive conditions: market domain overlap, which me asures the potential for competition, and multimarket contact, which m easures the potential for mutual forbearance. A dynamic analysis of Ca lifornia commuter airlines from 1979 through 1984 showed that increase s in market domain overlap raised airlines' rates of market entry and exit, but increases in multimarket contact lowered them, especially in markets clearly dominated by a single airline. Thus, paradoxically, c lose competitors are not the most intense rivals: airlines that meet i n multiple markets are less aggressive toward each other than those th at meet in one or a few markets.