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)
We investigate the effects of vertical integration on operational performance. Large U.S. airlines use regional partners to operate some of their flights. Regionals may be owned or governed through contracts. We estimate whether an airline's use of an owned, rather than independent, regional at an airport affects delays and cancellations on the airline's own flights out of that airport. We find that integrated airlines perform systematically better than nonintegrated airlines at the same airport on the same day. Furthermore, the performance advantage increases on days with adverse weather and when airports are more congested. These findings suggest that, in this setting, vertical integration may facilitate real-time adaptation decisions. Copyright (c) 2010, RAND..
Customer complaints measure consumers' dissatisfaction with the quality of a product or service. If product quality is unobservable ex ante, customer complaints may be driven by expectations as well as by the actually experienced quality level. I test whether the level of quality that could be expected prior to consumption affects the number of customer complaints after controlling for-ex post observable-actual quality, using data from the U.S. airline industry. I find that there are fewer complaints when actual quality is higher. Controlling for actual quality, a higher level of expected quality leads to more complaints. Ã
Disclosure programs exist in many industries in which consumersQ uality disclosure programs exist in many industries in which consumers are imperfectly informed about product quality.1 A growing empirical literature on disclosure programs has documented that disclosure can facilitate better matches between consumers and suppliers and improve the level of quality supplied by firms. However, there is also evidence that disclosure programs can have unanticipated and, in some cases, undesirable outcomes if firms attempt to improve their reported quality through actions that are harmful to consumer welfare. Examples of this type of behavior-which is often termed "gaming"-have been found in a number of contexts including educational accountability and health care. 2 While there has been a considerable amount of work establishing how disclosure programs may affect the behavior of firms, this work has not explicitly considered how the external 1 See Dranove and Jin (2010) for a review of the literature on disclosure programs.
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