Exchange-Rate Misalignments in Duopoly: The Case of Airbus and Boeing
Copyright policy )Exchange-Rate Misalignments in Duopoly: The Case of Airbus and Boeing
AbstractWe examine the effect of exchange‐rate misalignments on competition in the market for large commercial aircraft. This market is a duopoly where players compete in dollar‐denominated prices while one of them, Airbus, incurs a large fraction of its costs in euro. We estimate price elasticities for big aircraft, and construct a simulation model to investigate how companies adjust their prices to deal with the effects of a temporary misalignment and how this affects profit margins and volumes. We conclude that, due to the duopolistic nature of the aircraft market, Airbus will pass only a small part of the exchange‐rate fluctuations on to customers. Moreover, due to features specific to the aircraft industry, such as customer switching costs and learning‐by‐doing, even a temporary departure of the exchange rate from its long‐run equilibrium level may have permanent effects on the industry.
Exchange-rate pass-through, exchange rates, pass-through, oligopoly, 330, JEL: L - Industrial Organization/L.L6 - Industry Studies: Manufacturing/L.L6.L62 - Automobiles • Other Transportation Equipment • Related Parts and Equipment, JEL: D - Microeconomics/D.D4 - Market Structure, L.L6.L62 - Automobiles • Other Transportation Equipment • Related Parts and Equipment, and Market Performance/L.L1.L11 - Production, Luftfahrtindustrie, and Design/D.D4.D43 - Oligopoly and Other Forms of Market Imperfection, L.L1.L11 - Production, Pricing, and Market Structure • Size Distribution of Firms, D.D4.D43 - Oligopoly and Other Forms of Market Imperfection, oligopoly, Exchange-rate pass-through;duopoly;aircraft industry, duopoly, pass-through, JEL: L - Industrial Organization/L.L1 - Market Structure, [SHS.ECO] Humanities and Social Sciences/Economics and Finance, USA, F31, L13, ddc:330, JEL: F - International Economics/F.F3 - International Finance/F.F3.F31 - Foreign Exchange, Exchange rates, [SHS.ECO]Humanities and Social Sciences/Economics and Finance, F.F3.F31 - Foreign Exchange, Firm Strategy, and Market Structure • Size Distribution of Firms, aircraft industry, EU-Staaten, duopoly,aircraft industry,Exchange-rate pass-through, Internationaler Wettbewerb, Duopol, Exchange Rate Pass-Through, Pricing, Theorie, jel: jel:D43, jel: jel:L62, jel: jel:F31, jel: jel:L11, jel: jel:L13
Exchange-rate pass-through, exchange rates, pass-through, oligopoly, 330, JEL: L - Industrial Organization/L.L6 - Industry Studies: Manufacturing/L.L6.L62 - Automobiles • Other Transportation Equipment • Related Parts and Equipment, JEL: D - Microeconomics/D.D4 - Market Structure, L.L6.L62 - Automobiles • Other Transportation Equipment • Related Parts and Equipment, and Market Performance/L.L1.L11 - Production, Luftfahrtindustrie, and Design/D.D4.D43 - Oligopoly and Other Forms of Market Imperfection, L.L1.L11 - Production, Pricing, and Market Structure • Size Distribution of Firms, D.D4.D43 - Oligopoly and Other Forms of Market Imperfection, oligopoly, Exchange-rate pass-through;duopoly;aircraft industry, duopoly, pass-through, JEL: L - Industrial Organization/L.L1 - Market Structure, [SHS.ECO] Humanities and Social Sciences/Economics and Finance, USA, F31, L13, ddc:330, JEL: F - International Economics/F.F3 - International Finance/F.F3.F31 - Foreign Exchange, Exchange rates, [SHS.ECO]Humanities and Social Sciences/Economics and Finance, F.F3.F31 - Foreign Exchange, Firm Strategy, and Market Structure • Size Distribution of Firms, aircraft industry, EU-Staaten, duopoly,aircraft industry,Exchange-rate pass-through, Internationaler Wettbewerb, Duopol, Exchange Rate Pass-Through, Pricing, Theorie, jel: jel:D43, jel: jel:L62, jel: jel:F31, jel: jel:L11, jel: jel:L13
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