Final answer:
Southwest Airlines used the 'lower the inducement for attack' tactic by maintaining low prices and investing in cost-reduction to deter competitors from entering the market, building a sustainable low-cost operating model.
Step-by-step explanation:
The defensive tactic used by Southwest Airlines is generally identified as B) lower the inducement for attack. This approach involves setting prices so low that it discourages potential competitors from entering the market because they realize they may not be able to compete profitably. Additionally, Southwest's constant investment in cost-reducing measures reinforces this tactic by further decreasing the attractiveness of the market to potential rivals, as competing against a firm with a cost advantage can be incredibly challenging.
Such strategies can sometimes be confused with predatory pricing, a practice where a firm intentionally sets prices below its average variable costs to drive competitors out of the market before raising prices again. However, Southwest's approach was focused not on short-term elimination of competition but on building a sustainable low-cost business model that could perpetually keep potential rivals at bay.