Vertical Integration in Uncompetitive Markets: Evidence from the Acquisition of North Star Air by the North West Company

Nicholas Li () and Raymond Morgan ()
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Nicholas Li: Department of Economics, Toronto Metropolitan University, Toronto, Canada
Raymond Morgan: Department of Economics, Toronto Metropolitan University, Toronto, Canada

No 102, Working Papers from Toronto Metropolitan University, Department of Economics

Abstract: Canada’s remote northern communities have some of the highest food prices and food insecurity rates in the world and rely on a small number of retail and transportation firms. In 2017, the largest retailer in the region, the North West Company (NWC), acquired a regional airline and started transporting its own air freight to some of the “fly-in†communities it serves. Using a difference-in-difference design, we evaluate the effects of vertical integration on prices and shipment quantities of perishable foods. We find that after the acquisition, communities with vertically integrated retail-air freight experienced approximately 3.9% lower prices and 9.5% higher shipment quantities relative to comparison communities. Effects are qualitatively similar in communities where the acquisition changed firm boundaries without changing routes or upstream competition (Ontario) versus communities where it created new routes and competition (Manitoba and Nunavut). Estimated price reductions are larger in communities where NWC accounts for a smaller baseline share of subsidized shipments, while total shipments increase significantly in high-share communities. A theoretical model suggests that this could be due to greater “business-stealing†and lower share of sales exposed to marginal cost reductions in more competitive communities, and evidence from retailer-level shipments supports this interpretation. Our findings show that vertical integration can benefit consumers in markets with limited competition but that the size and nature of these benefits is sensitive to upstream and downstream market structure.

Keywords: vertical integration; market structure; prices; air transportation; retail; Northern Canada (search for similar items in EconPapers)
JEL-codes: L12 L13 L81 L93 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2026-10
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