IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/8648.html
   My bibliography  Save this paper

Airbus versus Boeing Revisited: International Competition in the Aircraft Market

Author

Listed:
  • Douglas A. Irwin
  • Nina Pavcnik

Abstract

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 percent after the 1992 U.S. – E.U. agreement on trade in civil aircraft that limits subsidies. This price hike is consistent with a 5 percent 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.

Suggested Citation

  • Douglas A. Irwin & Nina Pavcnik, 2001. "Airbus versus Boeing Revisited: International Competition in the Aircraft Market," NBER Working Papers 8648, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:8648 Note: ITI
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w8648.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Benkard, C. Lanier, 2000. "A Dynamic Analysis of the Market for Wide-Bodied Commercial Aircraft," Research Papers 1636, Stanford University, Graduate School of Business.
    2. 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.
    3. 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.
    4. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 383-406.
    5. 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.
    6. 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.
    7. 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.
    8. 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.
    9. 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.
    10. Paul Krugman & Alasdair Smith, 1994. "Empirical Studies of Strategic Trade Policy," NBER Books, National Bureau of Economic Research, Inc, number krug94-1, January.
    11. 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.
    12. Nina Pavcnik, 2002. "Trade Disputes in the Commercial Aircraft Industry," The World Economy, Wiley Blackwell, vol. 25(5), pages 733-751, May.
    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. Igal Hendel, 1999. "Estimating Multiple-Discrete Choice Models: An Application to Computerization Returns," Review of Economic Studies, Oxford University Press, vol. 66(2), pages 423-446.
    15. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
    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. Klepper, Gernot, 1990. "Entry into the market for large transport aircraft," European Economic Review, Elsevier, vol. 34(4), pages 775-798, June.
    18. Maggi, Giovanni, 1996. "Strategic Trade Policies with Endogenous Mode of Competition," American Economic Review, American Economic Association, vol. 86(1), pages 237-258, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Agnès Bénassy‐Quéré & Lionel Fontagné & Horst Raff, 2011. "Exchange‐rate Misalignments in Duopoly: The Case of Airbus and Boeing," The World Economy, Wiley Blackwell, vol. 34(4), pages 623-641, April.
    2. Ohashi, Hiroshi, 2005. "Learning by doing, export subsidies, and industry growth: Japanese steel in the 1950s and 1960s," Journal of International Economics, Elsevier, vol. 66(2), pages 297-323, July.
    3. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1450-1476.
    4. Wu, Xin-wang & Zhu, Quan-tao & Sun, Laixiang, 2012. "On equivalence between Cournot competition and the Kreps–Scheinkman game," International Journal of Industrial Organization, Elsevier, vol. 30(1), pages 116-125.
    5. Victor Fernandez-Blanco & Luis Orea & Juan Prieto-Rodriguez, 2013. "Endogeneity and measurement errors when estimating demand functions with average prices: an example from the movie market," Empirical Economics, Springer, vol. 44(3), pages 1477-1496, June.
    6. repec:aea:aejmic:v:10:y:2018:i:1:p:67-101 is not listed on IDEAS
    7. Gianmaria Martini & Davide Scotti, 2009. "Potere di mercato e distribuzione dei profitti nella filiera del trasporto aereo," Working Papers 0906, Department of Economics and Technology Management, University of Bergamo.
    8. Tombak, Mihkel M., 2006. "Strategic asymmetry," Journal of Economic Behavior & Organization, Elsevier, vol. 61(3), pages 339-350, November.
    9. Stephen Martin, 2012. "Market Structure and Market Performance," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 40(2), pages 87-108, March.
    10. Jan De Loecker & Johannes Van Biesebroeck, 2016. "Effect of International Competition on Firm Productivity and Market Power," NBER Working Papers 21994, National Bureau of Economic Research, Inc.
    11. T.Huw Edwards, 2009. "Regulatory Protection When Firms Move First," Discussion Paper Series 2009_19, Department of Economics, Loughborough University, revised Nov 2009.
    12. Koichi Kagitani, 2009. "Political Economy Of Strategic Export Policy In A Differentiated Duopoly," The Japanese Economic Review, Japanese Economic Association, vol. 60(2), pages 236-252.
    13. Bown, Chad P. & Crowley, Meredith A, 2016. "The Empirical Landscape of Trade Policy," CEPR Discussion Papers 11216, C.E.P.R. Discussion Papers.
    14. T. Huw Edwards, 2012. "Mutual Recognition versus National Treatment of Standards in a Classical Monopoly or Oligopoly," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 168(3), pages 455-487, September.
    15. Garcia Pires, Armando José, 2006. "Losers, Winners and Prisoner's Dilemma in International Subsidy Wars," CEPR Discussion Papers 5979, C.E.P.R. Discussion Papers.
    16. Mackay, Daniel, 2011. "Estimating the impact of investment tax credits on aircraft demand," MPRA Paper 32767, University Library of Munich, Germany.
    17. Berrittella, Maria & Franca, Luigi La & Mandina, Vito & Zito, Pietro, 2007. "Modelling strategic alliances in the wide-body long-range aircraft market," Journal of Air Transport Management, Elsevier, vol. 13(3), pages 139-148.
    18. Friberg, Richard & Ganslandt, Mattias, 2006. "An empirical assessment of the welfare effects of reciprocal dumping," Journal of International Economics, Elsevier, vol. 70(1), pages 1-24, September.
    19. Orea, Luis, 2007. "Estimating Firm-Specific Market Power: A Composed Error Term Approach," Efficiency Series Papers 2007/02, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
    20. Anders, Christoph, 2010. "Auswirkungen des Leasings auf Transaktionskosten," Leasing - Wissenschaft & Praxis, Universität zu Köln, Forschungsinstitut für Leasing, vol. 8(2), pages 71-88.
    21. Varshavsky, Leonid, 2010. "Methodological basis of modeling evolution of markets of products with long life cycle: a study of the civil aircrafts’ market," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 20(4), pages 53-74.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:8648. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/nberrus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.