Exchange-rate Misalignments in Duopoly: The Case of Airbus and Boeing

Agnès Benassy-Quere, Lionel Fontagné and Horst Raff

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Abstract: We examine the effect of exchange-rate misalignments on competition in the market for large commercial aircraft. This market is a duopoly where players compete in dollar-denominated prices while one of them, Airbus, incurs a large fraction of its costs in euro. We estimate price elasticities for big aircraft, and construct a simulation model to investigate how companies adjust their prices to deal with the effects of a temporary misalignment and how this affects profit margins and volumes. We conclude that, due to the duopolistic nature of the aircraft market, Airbus will pass only a small part of the exchange-rate fluctuations on to customers. Moreover, due to features specific to the aircraft industry, such as customer switching costs and learning-by-doing, even a temporary departure of the exchange rate from its long-run equilibrium level may have permanent effects on the industry.

Keywords: duopoly; aircraft industry; Exchange-rate pass-through (search for similar items in EconPapers)
Date: 2011-04
Note: View the original document on HAL open archive server: https://hal.science/hal-00603386v1
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Published in The World Economy, 2011, 34 (4), pp.623-641. ⟨10.1111/j.1467-9701.2011.01338.x⟩

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Related works:
Journal Article: Exchange‐rate Misalignments in Duopoly: The Case of Airbus and Boeing (2011)
Working Paper: Exchange-rate Misalignments in Duopoly: The Case of Airbus and Boeing (2011)
Working Paper: Exchange-rate Misalignments in Duopoly: The Case of Airbus and Boeing (2011)
Working Paper: Exchange-Rate Misalignments in Duopoly: the Case of Airbus and Boeing (2009)
Working Paper: Exchange-rate misalignments in duopoly: the case of Airbus and Boeing (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00603386

DOI: 10.1111/j.1467-9701.2011.01338.x

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