We Fly Congress: Market Actions as Corporate Political Activity in the U.S. Airline Industry

Abstract

The literature on corporate political activity (CPA) generally views nonmarket actions aimed at influencing political actors (e.g., lobbying or campaign contributions) as related but separate activities from market actions. This study demonstrates how firms' core market actions (e.g., market entry or geographic expansion) can function as CPA. We theorize two mechanisms through which firms leverage market actions as CPA-"pork" and "perk." We document these mechanisms through an empirical analysis of data from the U.S. airline industry over 30 years (1990-2019). Specifically, we find that airlines increase the supply of flights from airports in the home district of the Chair of the Transportation Committee of the U.S. House of Representatives (pork). Moreover, this increase in flight supplies is negatively associated with formal policy changes in Congress. We also find that the airlines increase the supply of flights to Washington, D.C. from the home district of the Speaker of the House and the home state of the Senate Majority Leader (perk). We contribute to the literature on CPA by demonstrating a blurred boundary between market and nonmarket actions, which may help explain firms' competitive actions that cannot be explained by market considerations alone.-2-"Something is broken, and the obvious divide between passengers and airlines needs to be addressed."-Rep. Bill Shuster (R-PA), Chair of the Committee on Transportation and Infrastructure of the U.S. House of Representatives

Corporate Political Activity, Reimagined: Revisiting the Political Marketplace

“…Furthermore, even in contexts where formal CPA tactics are allowed, informal tactics may be culturally more appropriate and/or effective. For example, in China, research shows a strong emphasis on guanxi, or developing rapport with business stakeholders (Park & Luo, 2001;Xin & Pearce, 1996). Indeed, the CPA literature on China has documented a strong reliance on political connections (Ang & Jia, 2014;Haveman, Jia, Shi, & Wang, 2017;Li, Meng, Wang, & Zhou, 2008;Peng & Luo, 2000).…”

“…Market actions made as a part of CPA include firm location choices (Bisbee & You, 2020; Ma & Delios, 2010; Patnaik, 2019), product technological changes (Geels & Penna, 2015), and collaboration on government projects (Darendeli & Hill, 2016). Further examples include firms choosing to locate subsidiaries in politically strategic ways, with a view to improving Congress members’ chances of re-election by employing their constituents (Bisbee & You, 2020), as well as U.S. airlines increasing their supply of flights from airports located in the home districts of targeted Congress members to curry favor (Pang, Funk, & Hirschman, 2020).…”

“…Corporate charitable donations may relieve firm tax burdens, while also serving the political function of providing financial support to foundations linked to public officials (Bertrand et al, 2020). Similarly, market actions may serve market objectives—but, at the same time, they may be targeting political actors by employing their constituents (Bisbee & You, 2020) or even providing favors to politicians (Pang et al, 2020). Although the CPA literature has devoted a lot of attention to the firm benefits due to CPA, exploring multiple benefits is particularly promising.…”