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Adaptation and Vertical Integration in the Airline Industry

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  • Silke Januszewski Forbes
  • Mara Lederman
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    Abstract

    We explore patterns of vertical integration in the US airline industry. Major airlines subcontract portions of their network to regional partners, which may or may not be owned. We investigate if ownership economizes on ex post renegotiation costs. We estimate whether airlines are more likely to use owned regionals on city pairs with adverse weather (which makes adaptation decisions more frequent) and on city pairs that are more integrated into the major's network (which raises the costs of having adaptation decisions resolved suboptimally). Our results suggest a robust empirical relationship between adaptation and vertical integration in this setting. (JEL L14, L22, L24, L93)

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    Bibliographic Info

    Article provided by American Economic Association in its journal American Economic Review.

    Volume (Year): 99 (2009)
    Issue (Month): 5 (December)
    Pages: 1831-49

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    Handle: RePEc:aea:aecrev:v:99:y:2009:i:5:p:1831-49

    Note: DOI: 10.1257/aer.99.5.1831
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    8. Francine Lafontaine & Margaret Slade, 2007. "Vertical Integration and Firm Boundaries: The Evidence," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 629-685, September.
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    Cited by:
    1. Lu, Xun & White, Halbert, 2014. "Robustness checks and robustness tests in applied economics," Journal of Econometrics, Elsevier, vol. 178(P1), pages 194-206.
    2. Guy David & Evan Rawley & Daniel Polsky, 2011. "Integration and Task Allocation: Evidence from Patient Care," NBER Working Papers 17419, National Bureau of Economic Research, Inc.
    3. Fageda, Xavier & Flores-Fillol, Ricardo, 2012. "On the optimal distribution of traffic of network airlines," European Economic Review, Elsevier, vol. 56(6), pages 1164-1179.
    4. Fageda, Xavier & Flores-Fillol, Ricardo, 2012. "Air services on thin routes: Regional versus low-cost airlines," Regional Science and Urban Economics, Elsevier, vol. 42(4), pages 702-714.
    5. Fageda, Xavier, 1975- & Flores-Fillol, Ricardo, 2010. "Technology, business models and network structure in the airline industry," Working Papers 2072/151552, Universitat Rovira i Virgili, Department of Economics.
    6. Fageda, Xavier & Flores-Fillol, Ricardo, 2011. "Air services on thin routes: Regional versus low-cost airlines," Working Papers 2072/179624, Universitat Rovira i Virgili, Department of Economics.
    7. Hubbard, Thomas N., 2010. "Equilibrium, outcomes, and the economics of organization," International Journal of Industrial Organization, Elsevier, vol. 28(4), pages 359-361, July.

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