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A Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft

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Author Info
C. LANIER BENKARD
Abstract

This paper uses an empirical dynamic oligopoly model of the commercial aircraft industry to analyse industry pricing, industry performance, and optimal industry policy. A novel feature of the model with respect to the previous literature is that entry, exit, prices, and quantities are endogenously determined in Markov perfect equilibrium (MPE). We find that many unusual aspects of the aircraft data, such as high concentration and persistent pricing below static marginal cost, are explained by this model. We also find that the unconstrained MPE is quite efficient from a social perspective, providing only 10% less welfare on average than a social planner would obtain. Finally, we provide simulation evidence that an anti-trust policy in the form of a concentration restriction would be welfare reducing. Copyright 2004 The Review of Economic Studies Ltd.

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Article provided by Blackwell Publishing in its journal The Review of Economic Studies.

Volume (Year): 71 (2004)
Issue (Month): (07)
Pages: 581-611
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Handle: RePEc:bla:restud:v:71:y:2004:i::p:581-611

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  1. Gabriel Weintraub & C. Lanier Benkard & Ben Van Roy, 2005. "Markov Perfect Industry Dynamics with Many Firms," NBER Working Papers 11900, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Besanko, David & Doraszelski, Ulrich & Kryukov, Yaroslav & Satterthwaite, Mark, 2007. "Learning-by-Doing, Organizational Forgetting and Industry Dynamics," CEPR Discussion Papers 6160, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Ulrich Doraszelski & Kenneth L. Judd, 2005. "Avoiding the Curse of Dimensionality in Dynamic Stochastic Games," NBER Technical Working Papers 0304, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Guillermo Caruana & Liran Einav, 2006. "Production Targets," NBER Working Papers 11958, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Ulrich Doraszelski & Mark Satterthwaite, 2007. "Computable Markov-Perfect Industry Dynamics: Existence, Purification, and Multiplicity," Levine's Bibliography 321307000000000912, UCLA Department of Economics. [Downloadable!]
  6. Doraszelski, Ulrich & Satterthwaite, Mark, 2007. "Computable Markov-Perfect Industry Dynamics: Existence, Purification, and Multiplicity," CEPR Discussion Papers 6212, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Stephen Ryan, 2005. "The Costs of Environmental Regulation in a Concentrated Industry," Working Papers 0510, Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research. [Downloadable!]
  8. Cerquera Dussán, Daniel, 2006. "Dynamic R&D incentives with network externalities," ZEW Discussion Papers 06-94, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research. [Downloadable!]
  9. Victor Aguirregabiria & Gustavo Vicentini, 2006. "Dynamic Spatial Competition Between Multi-Store Firms," Working Papers tecipa-253, University of Toronto, Department of Economics. [Downloadable!]
  10. Gabriel Y. Weintraub & C. Lanier Benkard & Benjamin Van Roy, 2005. "Markov perfect industry dynamics with many firms," Working Paper Series 2005-23, Federal Reserve Bank of San Francisco. [Downloadable!]
  11. Asplund, Björn Marcus, 2007. "A Test of Profit Maximization," CEPR Discussion Papers 6177, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Hashmi, Aamir Rafique & Van Biesebroeck, Johannes, 2007. "Market Structure and Innovation: A Dynamic Analysis of the Global Automobile Industry," MPRA Paper 1787, University Library of Munich, Germany. [Downloadable!]
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