my 2 euros worth : I've found it possible to share a route, make very decent profits on it, and have little need to throw more flights on to grab that last passenger. Actually, its counter-productive in financial terms. Under-supplying your share of the demand allows for significant price-hiking to be achievable ; so much so, in some cases, that alone is worth an extra flights-worth of revenue without the extra flights-worth of costs. Beating or matching my competitor on frequency and supply, with consequent pricing considerations, would actually lower per-aircraft earnings and tie up the additional aircraft (and expensive slots) that could be off earning more profitable corn elsewhere.
maybe its a hang-over from the old pricing mechanism, but over 100% supply is, in my view, wasting money, aircraft and overhead for the pleasure of having more aircraft than you really need or running another player out of town who, with some lateral thought, is not really hurting you much at all. Chief concern should be : is every-one of my aircraft and routes maximising its revenue for the minimum cost? Get that right and competition is rarely going to destroy you.