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Airbus versus Boeing Revisited: International Competition in the Aircraft Market

  • Irwin, Douglas
  • Pavcnik, Nina

This Paper examines international competition in the commercial aircraft industry. We estimate a discrete choice, differentiated products demand system for wide-body aircraft and examine the Airbus-Boeing rivalry under various assumptions on firm conduct. We then use this structure to evaluate two trade disputes between the United States and European Union. Our results suggest that aircraft prices increased by about 3.7% after the 1992 US – EU agreement on trade in civil aircraft that limits subsidies. This price hike is consistent with a 5% increase in firms’ marginal costs after the subsidy cuts. We also simulate the impact of the future entry of the Airbus A-380 super-jumbo aircraft on the demand for other wide-bodied aircraft, notably the Boeing 747. We find that the A-380 could reduce the market share of the 747 by up to 14.8 percentage points in the long range wide-body market segment (depending upon the discounts offered on the A-380), but would reduce the market for Airbus’s existing wide-bodies by an even greater margin.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3876.

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Date of creation: Apr 2003
Date of revision:
Handle: RePEc:cpr:ceprdp:3876
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  1. Jonathan Eaton & Gene M. Grossman, 1983. "Optimal Trade and Industrial Policy Under Oligopoly," NBER Working Papers 1236, National Bureau of Economic Research, Inc.
  2. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-58, March.
  3. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc.
  4. Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
  5. C. Lanier Benkard, 2000. "A Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft," NBER Working Papers 7710, National Bureau of Economic Research, Inc.
  6. Gernot Klepper, 1994. "Industrial Policy in the Transport Aircraft Industry," NBER Chapters, in: Empirical Studies of Strategic Trade Policy, pages 101-130 National Bureau of Economic Research, Inc.
  7. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  8. Benkard, C. Lanier, 2000. "A Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft," Research Papers 1636, Stanford University, Graduate School of Business.
  9. Paul Krugman & Alasdair Smith, 1994. "Empirical Studies of Strategic Trade Policy," NBER Books, National Bureau of Economic Research, Inc, number krug94-1, July.
  10. Irwin, Douglas A & Klenow, Peter J, 1994. "Learning-by-Doing Spillovers in the Semiconductor Industry," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1200-1227, December.
  11. James Levinsohn & Steven Berry & Ariel Pakes, 1999. "Voluntary Export Restraints on Automobiles: Evaluating a Trade Policy," American Economic Review, American Economic Association, vol. 89(3), pages 400-430, June.
  12. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
  13. Richard Baldwin & Paul Krugman, 1988. "Industrial Policy and International Competition in Wide-Bodied Jet Aircraft," NBER Chapters, in: Trade Policy Issues and Empirical Analysis, pages 45-78 National Bureau of Economic Research, Inc.
  14. Damien NEVEN & Paul SEABRIGHT, 1995. "European Industrial Policy: The Airbus Case," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9509, Université de Lausanne, Faculté des HEC, DEEP.
  15. Hendel, Igal, 1999. "Estimating Multiple-Discrete Choice Models: An Application to Computerization Returns," Review of Economic Studies, Wiley Blackwell, vol. 66(2), pages 423-46, April.
  16. C. Lanier Benkard, 2000. "Learning and Forgetting: The Dynamics of Aircraft Production," American Economic Review, American Economic Association, vol. 90(4), pages 1034-1054, September.
  17. Nina Pavcnik, 2002. "Trade Disputes in the Commercial Aircraft Industry," The World Economy, Wiley Blackwell, vol. 25(5), pages 733-751, 05.
  18. Klepper, Gernot, 1990. "Entry into the market for large transport aircraft," European Economic Review, Elsevier, vol. 34(4), pages 775-798, June.
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