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Airbus and Boeing: A real life duopoly

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  1. Introduction: summary of original economist articles
  2. Brief history and overlook of Airbus
  3. Brief history and overlook of Boeing
  4. Introduction to duopoly, characteristics, aspects
  5. How Airbus and Boeing exemplify this imperfectly competitive market model
  6. Microeconomics applied to the commercial air line industry
  7. Cost and demand functions of the airline industry
  8. Game theory models applied to Airbus and Boeing
    1. One-shot simultaneous game
    2. Leader and follower Stackelberg game
    3. Two-level hierarchical game
  9. Other competitors and barriers to entry in this market
  10. Conclusion

Another Nose in the Trough and Plane Poker were two articles on the air craft industry which were published by The Economist in late 2010. While these two articles might have been published in different issues of the famed magazine, when we consider the aircraft industry it is simply inevitable that these two texts would discuss very similar subjects?Airbus and Boeing.

These two firms enjoyed a perfect duopoly for two decades and today they can still be considered, quite comfortably, to be duopoly in general although no longer a perfect duopoly. What is still evident is that these two firms' business functions depend greatly on the other's business actions?one of the most visible characteristics of a duopoly. Another Nose in the Trough discusses the fierce finger pointing engaged by these two giants in being financed by illegal subsidies. Boeing, in its latest episode of illegal finances, has been found to have received illegal subsidies from both the Department of Defense and NASA which has been ruled by the WTO as a violation of global trading rules.

However, as the article unfolds we find that Airbus is no clean vessel either, for not too long ago it too was ruled by the WTO as having received billions of Euros in illegal subsidies from European governments underneath the cover of ?launch aid? as pointed out by a previously very jubilant Boeing. Now it is Airbus' turn to jump for joy with the latest finding that the $22 billion benefit enjoyed by Boeing under the cover of tax breaks was indeed an illegal subsidy.

[...] Blackwell Publishing Ltd, 2002.ProQuest. PROQUESTMS. 17 Apr. 2011 . Nicholson, Walter, and Christopher Snyder. Intermediate Microeconomics and Its Applications. Australia: South-Western Cengage Learning, 2010. Print. "FACTBOX-Airbus vs Boeing 2009 Orders, Deliveries | Reuters.", 12 Jan. 2010. Web. 23 Apr. 2011. . The Boeing Company. Web. 22 Apr. 2011. . Wenbin, Wei, and Hansen Mark. "Airlines' Competition in Aircraft Size and Service Frequency in Duopoly Markets." Transportation Research Part E: Logistics and Transportation Review 43.4 (2007): 409-24. July 2007. Web. 15 Apr. 2011. . [...]

[...] It is from analyzing their strategies, their available options and choices that we can move towards better understanding how a duopoly functions. In the study by Wie and Hansen the researchers apply non-cooperative non-zero sum game-theoretic models. These models are aimed to study airlines' choices/strategies when considering aircraft size and service frequency, telling us that they ?concentrate on airlines' long-term behavior on the level of market , in particular a duopoly market, where all the local passengers are served by direct non-stop flights? (Wenbin, 2007). [...]

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