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Conclusion:

  • Airbus and Boeing fits the duopoly of the market structure
  • 2 players in the market – barriers of entry
  • Non price competition – product differentiation and promotion activities
  • Must react to rival’s actions
  • No collusion – price and profits lower than in monopoly situation

Deliveries

2012 2011 2010 2009 2008

Boeing 588 534 510 498 483

Airbus 601 477 462 481 375

The short run economic inefficiencies may be partly or wholly offset by the oligopolists’ contributions to better products, lower prices and lower costs over time.

Competition is fierce

It is an ongoing see saw battle, with one company winner the most order in terms of number of planes in one year or two, then the leader changes.

  • Airbus and Boeing cannot charge monopoly (profit-maximizing) price because of the competition

P > min ATC No productivity efficiencyP > MC No allocative efficiency

Unless the change in MC from MC1 to MC3, otherwise, there is no change in price and output

Price and output at

MR = MC

  • The kinked demand curve model makes a prediction that a business might reach a stable profit-maximizing equilibrium at price P1 and output Q1 and have little incentive to alter prices
  • Conflict over government subsidies
  • US government and EU complains each other over government subsidies and handed the case to WTO
  • Must take account the rival’s actions
  • Airbus made A380 after dominance by Boeing 747Discontinued production of A340 after Boeing 787 DreamlinerDevelopment of A350 to counter Boeing 787

Today

  • Presently only 2 manufacturers of large commercial aircraft (100 seats and above): Boeing and Airbus
  • Only 2 manufacturers of regional commercial jet: Bombardier, and Embraer

DUOPOLY

History

  • 1960, there were only 12 commercial aircraft manufacturers
  • By 1980, only 3 left: Boeing, Lockheed Martin, and McDonnell Douglas
  • Lockheed Martin forced out of market because of the dismal failure of L-1011 Tristar
  • By 1996, Boeing and McDonnell Douglas merged together
  • Airbus has a similar story

Boeing & Airbus

Barriers of Entry

  • capital - modern aircraft manufacturing is a heavily capital intensive industry requiring immense expenditure in research, development, manufacturing, and marketing
  • technology - when a new aircraft is developed, new technologies are involved
  • economy of scale - a decrease in cost and increase in production, when products in different markets can be produced together using the same resources.

Characteristics of Oligopoly

  • only 2 producers in the industry
  • make differentiated products
  • compete not mainly by price, but product differentiation, advertisement, promotion activities etc
  • must take account of what the rival is doing
  • barriers of entry exist become oligopoly by mergers

What is a Duopoly?

A duopoly is a specific type of oligopoly where only two producers exist in one market.

This means that there are two major companies that own most, if not all, of the market.

An example of a duopoly is Boeing and Airbus.

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