Question

1. Discuss why are aircraft suppliers like Boeing and Airbus are examples of oligopoly?
2. Compared to other markets, it is difficult to analyze the behavior of firms under oligopoly. Why?

Answer 1

Dear Student,

Please find below answer to your question

Introduction

Recently Aircraft Supplier Boeing and Airbus has tremendously captured aviation market and there is drastic growth rate for both firms. They have some unique competitive strategies and due to oligopoly it is very difficult to penetrate such markets to other competitions companies

Abstract

1. An oligopoly is a market form wherein a market or industry is dominated by a small group of large sellers (oligopolists). Oligopolies can result from various forms of collusion that reduce market competition which then typically leads to higher prices for consumers. Oligopolies have their own market structure
2. With few sellers, each oligopolist is likely to be aware of the actions of the others. According to game theory, the decisions of one firm therefore influence and are influenced by decisions of other firms. Strategic planning by oligopolists needs to take into account the likely responses of the other market participants.
3. Entry barriers include high investment requirements, strong consumer loyalty for existing brands and economies of scale. In developed economies oligopolies dominate the economy as the perfectly competitive model is of negligible importance for consumers. Oligopolies differ from price takers in that they do not have a supply curve. Instead, they search for the best price-output combination
4. Oligopoly is a form of imperfect competition and is usually described as the competition among a few. Hence, Oligopoly exists when there are two to ten sellers in a market selling homogeneous or differentiated products. A good example of an Oligopoly is the cold drinks industry

Airbus and Boeing dominate an already under competitive airline manufacturing industry.

Overall, the market structure of commercial aircraft manufacturing industry is oligopoly. Boeing and Airbus possess the largest market share in duopoly. Compared with the market for personal computers, they are different owing to different market structure which is monopolistic competition.

The main reason behind this is that Airlines won't typically lower prices below variable costs because then it would be cheaper for them to not fly at all. .Combined, these airlines controlled 80 percent of the U.S. market in 2015, thus making the U.S. airline industry arguably an oligopoly

The oligopoly owns the sky by making up 99% of global large plane orders, and those large plane orders make up more than 90% of the total plane market according to the Teal Group, an aerospace market analysis company (regional jet manufacturers only account for 7% of the airplane market by value)

B) Compared to other markets, it difficult to analyze the behavior of firms under oligopoly. due to follwoing reasons

1.While game theory is important to understanding firm behavior in oligopolies, it is generally not needed to understand competitive or monopolized markets.

2.In competitive markets, firms have such a small individual effect on the market, that taking other firms into account is simply not necessary.

3. Due to below main characteristics also it is very difficult to analyze the behavior of firms under oligopoly -

(1) an industry dominated by a small number of large firms,

(2) firms sell either identical or differentiated products, and

(3) the industry has significant barriers to entry.

If you like the answer, Kindly subscribe and up vote

Thank You !!