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AIRLINE INDUSTRY Theoretical Framework Before you begin to collect data to analyze your Industry, you must provide a pre-research analysis of the...


Theoretical Framework

Before you begin to collect data to analyze your Industry, you must provide a pre-research analysis of the industry as follows:

Pre-research refers to having some knowledge of the theoretical relationship between the dependent variable and the independent variable before we collect the data.

1. The dependent variable is the industry's performance. There are three ways to quantify or measure performance:

a) Industry sales

b) Industry Net Revenue

c) Industry profitability

Data is available only on Net Revenue. But you must define all three measures and then state that you will focus on the revenue as a measure of the industry's performance because of the availability of data.

Regression Model( see Regression Analysis on page 84, chapter 3)

Performance (Q) depends on CR4, Technology, Market Conditions, and related variables as follows.

Q = intercept + b1CR4 + b2 Technology + b3 Market Conditions + error terms

Explain how each of the independent variableswill theoretically influence the dependent variable. Make reference(s) to at least two scholarly articles. The scholarly articles will be used eventually as your References.

2. Establishing a theory

List the three sub-parts of the industry to include CR4, Technology and market conditions. See chapter 7 in the text book. Define and explain how each can influence the industry's performance.

For example, the top large four companies of the industry(CR4) controls 90% of all sales. An increase in the concentrate measure will result in more control of the industry by the few largest companies and subsequently a positive relationship is expected between performance and CR4.


There are sub-parts: Lerner index and Mergers and Acquisition.

Theory: When two or more companies merged, we will expect a large market share. This relatively high market share will give power to the merged companies to raise prices and hence industry's profitability. Discuss the two types of merger: horizontal and vertical

Horizontal Merger is a merger between firms that are offering comparative items in a similar market. The bank merger of 1980s and the merger of HP and Compaq are cases of horizontal merger. A horizontal merger diminishes rivalry in the market.

Vertical Merger is a merger between organizations in a similar industry, however at various phases of production process. In another words, a vertical merger happens between organizations where one purchases or offers something from or to the next. For instance, Pepsi's merger with eatery networks that it supplies with refreshments is a vertical merger. E-Bay purchasing PayPal is another illustration.

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