Robert Nutter wrote an informative piece in the Sept edition of econoMAX (online Economics magazine of Tutor2u) on the airline production duopoly. Duopoly is a form of oligopoly and exists in a market when two companies control nearly all the market share of a product or service. The $1.6 trillion market for passenger aircraft has been dominated by Airbus and Boeing for over 20 years with Airbus accounting for 47% of the market in 2009 and Boeing 43%. Thus whenever we fly with airlines such as Air New Zealand or JetSar the chances are we are being carried in one of a range of planes produced by these two firms such as the Airbus 320 or the Boeing 737.
These two aircraft manufacturers use non price competition as they battle for market share in the short haul and long haul passenger aircraft market. While price is obviously a factor for airlines purchasing their airliners they also look for increased fuel efficiency, lower emissions, low maintenance costs, reliability and design as key selling points. The high research and development and marketing costs would seem to suggest this is not a contestable market that will remain a duopoly. However there are increasing threats to the dominance of Airbus and Boeing, particularly in the area of the market dominated by the Airbus 320 and the Boeing 737. Embraer, the Brazilian manufacturer, the Russian aircraft manufacturers United Aircraft Company and Sukhoi as well as China’s Comac and Bombardier from Canada will probably challenge the big two in the year’s ahead forcing them to spend more on R&D than they previously planned.