Deterministic Chaos in The Capacity Expansion Race: a Study of the Airline Industry

In this paper, the dynamic and complex nature of capacity expansion race is depicted by a non-linear 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 non-linear 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 pre-emptive strategy. When organizations are in trouble, organizations tend to use pre-emptive 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.