The Rivalry Between Boeing and Airbus

The Rivalry Between Boeing and Airbus

The rivalry between Boeing and Airbus goes back a long way, when

Boeing was by far the dominant supplier of commercial airplanes. Up

until 1997, Boeing was the clear market leader on the passenger

airplane market. Now the situation is less certain, as Airbus has

overtaken its American competitor[1] not only in the domestic market

but also in the world market, with its introduction of new models of

passenger aircrafts. The main issue addressed in this article is that

a 1992 U.S.-EU civilian aircraft pact allows too much European

government support for Airbus, helping it sell more jetliners than

Boeing, which had an 80% share in the market a decade ago. Thus the

U.S. government wants the E.U. to put an end to any new subsidies

provided by their government, which are aimed at protecting their

aerospace industry.

The market structure for the aerospace sector is oligopolistic i.e.

there are few enough firms to enable barriers to entry to new firms

because of various reasons such as huge capital investments and high

technology. Hence, Boeing and Airbus, which are the two giants in the

aerospace industry, have virtually split the market. When Airbus was

first set up, it faced a lot of competition from Boeing. This civilian

aircraft pact allowed the European government to take protectionist

measures by providing various government subsidies to its developing

high –technology industry (i.e. Airbus) so that it could compete with

Boeing in the international market. The diagram below illustrates the

impact of the subsidies on the quantity supplied by Airbus in the

domestic market.

In the diagram we assume that the world supply is perfectly elastic at

Pw. Under conditions o...

... middle of paper ...

... disputes and worsen trade

realtionships between the U.S. and the E.U.

The E.U. government was justified in providing subsidies to Airbus

earlier. This is because Boeing were the clear market leaders and had

established a monopoly power (i.e. Boeing was the only major industry

in the aerospace sector) not only in the world market, but also in the

local European market. Hence, this posed as a big threat to Airbus,

since they were not able to compete in the world and local market and

this could have lead to the decline of the aerospace industry of

Airbus. But now, since Airbus has established itself as one of the

main producers in the aerospace sector, future subsidies are not

desirable for free trade.

References: Essential of Economics – John Sloman

http://news.bbc.co.uk/1/hi/business/125726.stm

[1] http://news.bbc.co.uk/1/hi/business/125726.stm