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Adaptation and Vertical Integration in the Airline Industry

  • Silke Januszewski Forbes
  • Mara Lederman

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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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.99.5.1831
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File URL: http://www.aeaweb.org/aer/data/dec09/20051176_data.zip
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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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  12. Lafontaine, Francine & Slade, Margaret, 2007. "Vertical Integration and Firm Boundaries : The Evidence," The Warwick Economics Research Paper Series (TWERPS) 799, University of Warwick, Department of Economics.
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