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

Agnès Benassy-Quere, Lionel Fontagné and Horst Raff

No 1488, Kiel Working Papers from Kiel Institute for the World Economy

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 rates; pass-through; oligopoly (search for similar items in EconPapers)
JEL-codes: F31 L13 (search for similar items in EconPapers)
Date: 2009
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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 (2011)
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:zbw:ifwkwp:1488

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