Journal Article

Exchange-Rate Misalignments in Duopoly: The Case of Airbus and Boeing


  • Bénassy-Quéré
  • A.
  • Fontagné
  • L.
  • Raff
  • H.
Publication Date

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 a large fraction of its costs in euro. We estimate price elasticities for big aircraft, and construct 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 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. 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.


JEL Classification
F31, L13

Key Words

  • exchange rates
  • oligopoly
  • pass-through
  • Wechselkurse