Deterministic chaos in the capacity expansion race: a study of the airline industry

The dynamic and complex nature of the capacity expansion race is depicted by a nonlinear dynamic system that parsimoniously captures the market moves of firms and their collective impacts on each firm and the industry as a whole. Three types of capacity expansion strategy (market preemption, pacing, and phase out) are investigated using a nonlinear dynamic simulation model. We argue that, when an organizational system is positioned in a stable state, organizations are more likely to use pacing strategy than preemptive strategy. When organizations are in trouble, organizations tend to use preemptive strategy in an effort to offset troubled income streams. Such a strategy however, does not payoff and is likely to bring the organizations into a chaotic state. The findings support these propositions. The model presented in the paper also provides significant implications about capacity expansion policies