This paper develops a multi-agent dynamic model of the commercial aircraft industry and then uses that model to analyze industry pricing, industry performance, and optimal industry policy. In the model, firms are differentiated in their products and cost structure, and entry, exit, prices, and quantity sold are endogenously determined in dynamic equilibrium. Re ecting the focus of the paper, demand and supply are modeled structurally, while investment is modeled in reduced form. The model utilizes a cost model of commercial aircraft production developed and estimated in a previous paper (Benkard (2000)), and a discrete choice model of commercial aircraft demand to determine static profits. I find that many unusual aspects of the aircraft data, such as high concentration and pricing below the level of static marginal cost, are explained by this model. The model also replicates the stochastic evolution of the industry well. Many of these properties could not be explained with a static model. These results provide support for the structural dynamic modeling approach in general. I also find that the unconstrained Markov perfect equilibrium is quite efficient from a social perspective, providing only 9% less welfare on average than a social planner would obtain, but that the Markov perfect equilibrium shifts a substantial amount of welfare from consumers to producers. Finally, I provide simulation evidence that an anti-trust policy in the form of a concentration restriction would be welfare reducing with high probability.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
7710.
Length: Date of creation: May 2000 Date of revision: Handle: RePEc:nbr:nberwo:7710
Note: PR Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A. Phone: 617-868-3900 Email: Web page: http://www.nber.org More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: ().
Related research
Keywords:
Other versions of this item:
Find related papers by JEL classification: L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
This paper has been announced in the following NEP Reports:
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Did you know? You can import bibliographic info in various formats into you bibliographic tool, or just into your word processor. See under "publisher info" on each abstract page.