Does vertical integration affect firm performance? Evidence from the airline industry

Forbes, Silke J.; Lederman, Mara

doi:10.1111/j.1756-2171.2010.00120.x

Cited by 151 publications

(93 citation statements)

References 38 publications

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“…Evidence from air travel corroborates our basic result concerning the relation of integration to product price: the tendency for major airlines to own local carriers is greatest in markets where routes are most valuable (Forbes and Lederman, 2009;2010). In their study of the concrete industry, Hortaçsu and Syverson (2007) report that enterprises with identical technology make different integration choices, a finding that is difficult to reconcile with a model of integration that is based only on technological considerations, but is easily understood in terms of the heterogeneity result.…”

Section: Introductionsupporting

confidence: 58%

“…and Lederman, 2009;2010). The good required by a traveller will often consist of two complementary flight segments, one served by the regional carrier and one served by the major, which corresponds rather closely to the situation modeled here.…”

Section: Iid Industry Equilibrium and The "Organizationally Augmentmentioning

confidence: 99%

“…Moreover, as pointed out by Gibbons (2006Gibbons ( , 2010, there is much evidence of correlation between organizational and productivity variation. The airline case (Forbes andLederman 2009, 2010) discussed earlier is an example: major airlines own some of their regional flights (integration) and outsource others (nonintegration), even among flights with the same origin airport on the same day, and despite the superior performance of the integrated relationships. But there is little theoretical work attempting to explain how these organizational and performance differences can persist.…”

Section: Iiia Heterogeneity Of Ownership Structurementioning

confidence: 99%

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A Price Theory of Vertical and Lateral Integration*

Legros

Newman²

2013

The Quarterly Journal of Economics

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This article presents a perfectly-competitive model of firm boundary decisions and study their interplay with product demand, technology, and welfare. Integration is privately costly but is effective at coordinating production decisions; nonintegration is less costly, but coordinates relatively poorly. Output price influences the choice of ownership structure: integration increases with the price level. At the same time, ownership affects output, since integration is more productive than nonintegration.For a generic set of demand functions, equilibrium delivers heterogeneity of ownership and performance among ex-ante identical enterprises. The price mechanism transmutes demand shifts into industry-wide re-organizations and generates external effects from technological shocks: productivity changes in some firms may induce ownership changes in others. If the enterprise managers have full title to its revenues, market equilibrium ownership structures are second-best efficient. When managers have less than full revenue claims, equilibrium can be inefficient, with too little integration.

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Section: Introductionsupporting

confidence: 58%

Section: Iid Industry Equilibrium and The "Organizationally Augmentmentioning

confidence: 99%

Section: Iiia Heterogeneity Of Ownership Structurementioning

confidence: 99%

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A Price Theory of Vertical and Lateral Integration*

Legros

Newman²

2013

The Quarterly Journal of Economics

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“…Indeed, Forbes and Lederman (2010) have investigated performance implications of a firm's vertical integration in the airline industry (shorter delays and fewer cancellations). However, another study undertaken by Lu and Tao (2008) has proved that the degree of vertical integration has a negative and a statistically significant impact on productivity.…”

Section: Vertical Integration and Performancementioning

confidence: 99%

“…Then, it is argued that vertical integration strategy depends on the firm's performance (Forbes & Lederman, 2010).…”

Section: Vertical Integration and Performancementioning

confidence: 99%

Firm Size, Innovation and Vertical Integration Incentives: The Case of Food Supply Chain

Omrane¹,

Benmehaia²

2016

CBR

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This study aims to investigate and explore the relationship between vertical integration and the firm's innovativeness in food supply chain. For doing so, a two-stage least-squares model was used. It encompassed instrumental variables that attempt to describe the effective determinants of firm's vertical integration willingness.Results based on data concerning a set of 130 food-manufacturing firms, highlighted that vertical integration of a firm is strongly affected by internal incentives such as innovation rate and firm size. Moreover, it is simultaneously influenced by the economies of scale and some structure incentives. To conclude, results indicate globally that important and statistically significant differences exist across the studied firms and the small effective ones which acquire a high level of vertical integration.

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Impact of the U.S.–China trade war on the operating performance of U.S. firms: The role of outsourcing and supply base complexity

Fan

Zhou

Yeung

et al. 2022

J of Ops Management

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Multinational corporations have benefited tremendously from free trade in the past few decades. However, the dynamism of international relations, paired with the global recession, has rekindled the debate over frictionless trade. In this study, we examine how trade friction, created by tariff trade barriers, affects the operational performance of domestic firms which source from the affected countries. We also investigate how various supply chain characteristics and strategies can moderate the impact of such trade friction. Motivated by the 2018 U.S.-China trade war, we conducted a difference-in-difference analysis to examine the impact of trade tariffs on performance indicators of U.S. firms with direct supplier connections in China. Specifically, we found that U.S. firms with direct supply partners (i.e., first-tier suppliers) in China had a worse performance than the U.S. firms without direct supply partners in China in terms of inventory (i.e., days of supply) and profitability (return-onassets). We further found that the negative impacts were more severe for firms with a higher degree of outsourcing, and horizontal and spatial supply base complexity. We discuss the implications for international operations management, supply chain networks, supply risk management, and provide suggestions to supply chain practitioners and trade policymakers.

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Does vertical integration affect firm performance? Evidence from the airline industry

Cited by 151 publications

References 38 publications

A Price Theory of Vertical and Lateral Integration*

A Price Theory of Vertical and Lateral Integration*

Firm Size, Innovation and Vertical Integration Incentives: The Case of Food Supply Chain

Impact of the U.S.–China trade war on the operating performance of U.S. firms: The role of outsourcing and supply base complexity

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