Duopoly market structure:
A duopoly, only two competitors in the market, is the extreme basic form of an oligopoly, few competitors in a market. Duopolists engage in a non-cooperative game because firms are not allowed legally by many states to sit together and form a cartel where they can agree on certain prices, quantities, strategies, etc… Non-cooperative games can take the form of cournot, both firms move together and choose their quantities simultaneously, or stackelberg, the leader firm moves first and sets its output quantity and then the follower firm moves second based on the first firm's move. Given the assumption that each firm is able to have a full information of the other, they both realize the market power of each respective firm. Deviating from the plan/quantities will lead both firms to cheat and hence, the race to the bottom begins. This can be illustrated by showing the profit function of both firms by using Dixit (1979) equation:
Πi(x1,x2) = xi U(x1,x2) – Ci(xi), i= 1,2
Where x is the quantity/output, Ci is the total cost, and U is the utility. A firm's action can have a substantial effect on the other.
Civil aircraft industry:
Gaining a substantial market power in the commercial aviation industry allows for significant impact on technological development, economic growth, employment, and national prestige (Carbaugh & Olienyk 2004). In 2010, more than any manufacturer sector, the value of aerospace industry shipment in the US accounted for more than $171 billion of civil aircraft and a trade surplus of more than $43 billion (Harrison 2011). Like any other industry, large commercial airplane industry gets affected by macro, endogenous, and exogenous factors. Several factors may influence the industry i...
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...ompetitive as more firms entered the market. Recently, Embraer and Bombarfier are the dominant producer of regional jets, <90 seats (Harrison, 2011). Although, entry to the aircraft industry is never been an easy task, government sponsored firms proved the opposite. Firms subsidized by Russia, Brazil, China, Canada, and Japan are announcing to enter the small aircraft industry by 2016. Because small aircraft manufacturing accounts for more than 50% of the total commercial aircraft produced, it can be seen as a gate way to enter the large commercial aircraft industry, hence, compete with Boeing and Airbus (Harrison, 2011).
By closely analyzing the president of Boeing, Jim Albaugh, announcement, "the days of duopoly with Airbus are over in the small commercial jets", we have to realize that the future of the large commercial aircraft won't be as it looks like today.
An oligopoly is defined as "a market structure in which only a few sellers offer similar or identical products" (Gans, King and Mankiw 1999, pp.-334). Since there are only a few sellers, the actions of any one firm in an oligopolistic market can have a large impact on the profits of all the other firms. Due to this, all the firms in an oligopolistic market are interdependent on one another. This relationship between the few sellers is what differentiates oligopolies from perfect competition and monopolies. Although firms in oligopolies have competitors, they do not face so much competition that they are price takers (as in perfect competition). Hence, they retain substantial control over the price they charge for their goods (characteristic of monopolies).
In the United States, Boeing was the primary civil aviation manufacturer for over half a century. Using manufacturing and defense techniques, it soon became the world’s top producer of commercial aircraft. Of their fleet consisting of fourteen models (five families), their forerunner was the 747-400. When they first produced the 747 in 1965, their decision was criticized and called a gamble. Nonetheless, Boeing announced an initial order of 25 planes which, as a result, caused their stock prices to increase 5.1%. In spite of an initial potential failure, Boeing’s demand for the 747 aircraft continued to stay strong with 47 planes delivered in 1999 and 74 more in their backlog.
In early 2003, Boeing announced its plans to develop a new airplane (7E7 & 7E7 Stretch) in a market that was facing a tight squeeze on profits. The decline in the airline industry was attributed in large part to the war in Iraq, international terrorism, and fear of spreading SARS. The development of this new aircraft could possibly bring Boeing out of their innovation slump and potentially give them an advantage in the mid-sized aircraft market.
The Boeing Corporation is one of the largest manufacturers in the world. Rivaled only by European giant Airbus in the aerospace industry, Boeing is a leader in research, design and manufacture of commercial jet airliners, for commercial, industrial and military customers. Despite enjoying immense success in its market and dominating an industry that solely recognizes engineering excellence, it is crucial for Boeing to ensure continued growth through consistent strategy formulation and execution to avoid falling behind in market share to close and coming rivals.
The commercial aircraft industry had experienced a significant change during the deregulation of domestic airlines in 1978. The deregulation resulted in an increase in air travel, intense airfare competition among carriers, the entry of low-cost and low-capacity airlines. This increased competition shifted the focus of aircraft manufacturing from performance to low cost and from service to price.
The article by Binyamin Appelbaum and Christopher Payne demonstrates the complexity of one of the world’s biggest supply chains. It was interesting to learn how many different components went into the production of the airplanes. The different geographic locations in which the parts were built was fascinating as well. I had no idea that a manufacturer in Alabama would have parts shipped in from places as far away as Wales and France. The amount of coordination and collaboration needed to maintain efficiency within Airbus must be incredible. Later in the article I learned that the small town of Mobile, Alabama had been trying to develop an airplane factory for more than 30 years. It wasn’t until 2012 that they finally began assembling passenger
Airline and travel industry profitability has been strapped by a series of events starting with a recession in business travel after the dotcom bust, followed by 9/11, the SARS epidemic, the Iraq wars, rising aviation turbine fuel prices, and the challenge from low-cost carriers. (Narayan Pandit, 2005) The fallout from rising fuel prices has been so extreme that any efficiency gains that airlines attempted to make could not make up for structural problems where labor costs remained high and low cost competition had continued to drive down yields or average fares at leading hub airports. In the last decade, US airlines alone had a yearly average of net losses of $9.1 billion (Coombs, 2011).
This report is based on Ryanair Holdings PLC which was established in 1985. “Ryanair obtains permission from the regulatory authorities to challenge the British Airways and Aer Lingus' high fare duopoly on the Dublin-London route. Services are launched with two (46-seater) turbo prop BAE748 aircraft” (Ryanair, ND). Ryanair Holdings PLC is an Ireland based airline which is the largest low fare airline with 32 bases & over 800 low fare routes across 26 countries, connecting 146 destinations. Ryanair fleets are made up of 196 Boeing 737-800 crafts with a seating capacity of 189 seats. Its aims are to deliver a further 102 aircrafts over the next 3 years. Ryanair currently employs more than 6,000 people and expects to carry over 67 million passengers this year. This report is giving me the chance to highlight Ryanair’s strengths, weakness, opportunities and threats which they face now and in the near future.
The UK aviation industry is projected to overcome the current challenges such as economic instability and immaturity. Once it matures, the industry will be less susceptible to factors such as fares and variations in GDP thus sustained growth. Nonetheless, these factors are also quite unpredictable implying that their effect will be felt though at lower levels.
Oligopoly is a market structure in which only few firms are having control over market supply and since there are high barriers of entry and exit from the oligopoly market, the existing firms enjoy the monopoly kind position.( Parkin, 2011) Following are some of the salient features of Oligopoly Market:
High capital causing Boeing to invent huge financial resources in manufacturing facilities to produce large commercial planes creates entry barriers
These organisations must take into account the actions and reactions of their competitors when making business decisions – this is known as collusive oligopoly or collusion. These firms are interdependent and keep prices inelastic – if one organisation was to raise its prices then it would lose customers to its rivals and if it was to lower its prices then its competitors would follow suit so neither strategy would increase revenue. OPEC is one such organisation that restricts the supply of oil to keep the price high.
Since airlines have historically shown poor performance, it has been suggested that airline business is not cyclical business but bad business (Das, 2011). Indeed, the combined net profit margins of United States airlines, for instance, have typically been only about half of the Standard and Poor’s 500 list of industrial, utility and transportation companies’ net profit margins (ibid.). For several years the airline industry has been very turbulent and has been through financial...
Airbus produces approximately half of the world’s jet airlines. Porter stated that aircraft suppliers have more profit compared to airlines; therefore, we decided to find out what kind of business strategies help the company excel, particularly Airbus is competing with Boeing. On the other side, business strategies will support the company’s future design processes in the industry and technology needs. Airbus does not only manufacture passenger jets, they also have military and aerospace projects with its parent company. These details might be interesting to learn more about the jet airline industry.
The Aviation Industry in India has faced major challenges in the last 5 years after enjoying a period of unprecedented boom since the de-regulation of the Indian Skies in the early 1990’s. The private aviation industry which saw its first carrier in Jagson Airlines, now has more than 20 players vying for a share of the lucrative Indian Aviation Market, which has unparalleled abeyance for growth.