Multimarket contact, excess capacity, and low-cost carrier competition: A dual-channel model of mutual forbearance in international airline markets

Research on the relationship between multimarket contact (MMC) and firm performance has produced mixed results. To help reconcile this discrepancy, we examine how firm-level excess capacity and low-cost carrier (LCC) competition condition the MMC–performance relationship in international airline markets. Drawing on mutual forbearance theory, we disaggregate total multimarket contact into contacts through strong resource-sharing markets (routes sharing endpoint cities) and weak resource-sharing markets (routes without shared endpoints), and we theorize a dual-channel model in which excess capacity determines which type of contact drives forbearance. Our analysis of 2979 firm–market–year observations spanning 82 airlines across 265 route markets serving Taiwan over the period 2009–2018 reveals three principal findings. First, total MMC exhibits an inverted U-shaped relationship with subsequent market share. Second, excess capacity channels the significant concave MMC profiles through different contact types: strong resource-sharing contact among high-excess-capacity firms (where idle capacity is visible at shared airports) and weak resource-sharing contact among low-excess-capacity firms (where network breadth sustains competitive awareness); in both cases the estimated downturn lies in a sparsely populated right tail and is interpreted cautiously. Third, LCC entry disrupts the forbearance equilibrium: the inverted U-shape is absent in markets with LCC competitors, and an exploratory positive linear pattern in those markets suggests that multimarket contact functions there as a competitive resource rather than as a forbearance signal. Accordingly, our study contributes to the multimarket competition literature by shedding light on how firm resources and competitive context jointly determine the mechanism and viability of mutual forbearance, helping to reconcile the inconsistent findings in prior research.