A Note on Strategic Trade Applications and Public Support Selection in the Aerospace industry: Which Subsidy for Airliner Manufacturers?

Policy makers and academics have long analyzed a duopoly in the commercial airliners manufacturers industry between Airbus and Boeing. Particular attention has been paid to the structure and performance of the industry, as well as the crucial role of subsidies in the context of strategic trade theory and applications, leading to one of the longest World Trade Organization cases. This analysis is becoming increasingly topical as both competitors experience significant backlogs with indications that their capacity does not meet demand, public discussion on subsidies is increasing and new contenders in the long haul market are becoming visible. The modeling method developed compares and evaluates government support in the forms of capacity enhancement with the relevant support of per unit cost on the performance of the domestic firm. The results are compatible with the stylized evidence, revealing that the capacity enhancement mechanism is inferior in boosting the domestic firm’s performance.