Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/24884
Authors: 
Bénassy-Quéré, Agnès
Fontagné, Lionel
Raff, Horst
Year of Publication: 
2009
Series/Report no.: 
Kiel working paper 1488
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.
Subjects: 
Exchange rates
pass-through
oligopoly
JEL: 
F31
L13
Document Type: 
Working Paper

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