Exchange-rate misalignments in duopoly: the case of Airbus and Boeing

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Kiel Working Paper ; No. 1488

Classification and Topics

• Classification: Wirtschaft ; Foreign Exchange ; Oligopoly and Other Imperfect Markets
• Subject: Exchange rates ; pass-through ; oligopoly ; Luftfahrtindustrie ; Duopol ; Exchange Rate Pass-Through ; Internationaler Wettbewerb ; Theorie ; EU-Staaten ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bénassy-Quéré, Agnès ; Fontagné, Lionel ; Raff, Horst
• Event: Veröffentlichung
• (who): Kiel Institute for the World Economy (IfW)
• (where): Kiel
• (when): 2009

Further information

• Handle: http://hdl.handle.net/10419/24884
• Last update: 10.03.2025, 11:41 AM CET