Control Rights, Network Structure and Vertical Integration: Evidence from Regional Airlines

摘要: This paper investigates the relationship between vertical integration and importance of control rights under incomplete contracts. Our setting is U.S regional airline industry. Regional airlines operate flights for major carriers major's brand. The majors market regionals' as their own. There substantial heterogeneity in whether or not regionals are owned by which they operate. Furthermore, several own some partners while also contracting with others. We develop a simple framework that illustrates benefits costs regional. argue when unforeseen disruptions create need schedule adjustments - frequently occurs industry will internalize impact disruption on its entire network, not. Ownership mitigates this incentive problem giving over how regional's physical assets labor force used. However, bringing "in-house", ownership may erode cost savings very reason why subcontract certain to regionals. Using data majors' use second quarter 2000, we test choice organizational form reflects tradeoff greater lower costs. results provide support our analytical framework. find more likely serve city pairs (1) integrated into where externalities internalized be greatest; (2) adverse weather conditions, common.