Proprietary Information Networks and the Scope of the Firm
International air freight, once the exclusive domain of heavy regulation, is now a global market fraught with intense competition by for-profit firms. One feature of this competition is that the organizational form of carriers frequently differs. For an example, consider documents and parcels exported by the Japanese international air courier and small package (IC&SP) industry. Some carriers are vertically integrated, which is to say that a carrier owns domestic freight forwarding and trucking operations, international air, and foreign freight forwarding and trucking operations. Federal Express, which owns both domestic and foreign trucking as well as international air operations, typifies a fully integrated organizational form for IC&SP service. In contrast, other carriers employ a more disaggregated organizational form outsourcing one or more of these operations. Overseas Courier Service Co., Ltd., for instance, typifies a freight forwarder that owns a foreign freight forwarder but contracts for some of its domestic trucking services, for international air operations, and for foreign trucking services—an organizational form sometimes referred to as a network organization. Between these two extremes can be found a variety of ownership structures with firms owning some, but not all of these activities. Moreover, carriers may vertically integrate transportation segments for one destination, yet contract out for another. What accounts for this organizational heterogeneity? Why do some firms vertically integrate into some segments of IC&SP service while other firms rely on network organizations?
KeywordsInformation Network Vertical Integration Spot Market Transaction Cost Economic Specific Investment
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