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N° 2009-10 |
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| June 2009 |
| Exchange-Rate Misalignments in Duopoly: the Case of Airbus and Boeing |
Agnès Bénassy-Quéré
Lionel Fontagné
Horst Raff |
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| 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. |
Non-technical summary  |
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Résumé
non-technique
en français |
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| Full text |
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| Exchange-rate pass-through; duopoly; aircraft industry |
Keywords |
| F31; D43; L11; L62 |
JEL classification |
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