What Changes with Ownership? Evidence from Regional Airlines
Abstract: Much of the evidence about differences between integrated and non-integrated firms comes from cross-sectional comparisons of firms with different organizational forms. In this paper, we attempt to provide evidence that comes from examining the same firms which - at different points in time - operate under both vertical integration and contracts. Our setting is the U.S. airline industry. Large U.S. airlines subcontract portions of their network to regional affiliates. In the late 1990s, several airlines purchased some of their regional partners while in the last few years, several airlines have divested themselves of their regional partners. In all cases, the major and the regional continued to work together after the change in organizational form. We exploit this within-pair variation to document whether ownership affects coordination in this industry.
