CEPII, Recherche et Expertise sur l'economie mondiale
Exchange-Rate Misalignments in Duopoly: the Case of Airbus and Boeing

Agnès Bénassy-Quéré
Lionel Fontagné
Horst Raff

 Highlights :

 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 costs mostly in euros. We construct and calibrate 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 also explore the effects on the long-run dynamics of competition. 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 through higher prices. 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 : Exchange-rate pass-through | duopoly | aircraft industry | Tarification

 JEL : F31, D43, L11, L62
CEPII Working Paper
N°2009-10, June 2009

Non Technical Summary

Full text

BibTeX (with abstract),
plain text (with abstract),
RIS (with abstract)