Airbus and Boeing operate a roughly equal duopoly in the market for single-aisle jets that Airbus values at $3.5 trillion over 20 years.
Neither can afford to fall too far behind without suffering a big disadvantage on costs, which depend heavily on volumes.
If one of them did, it would likely take drastic action – anything from launching a price war to developing a new jet – that could destabilize both, and so market forces tend to keep the two companies’ strategies in line, industry insiders say…
Airbus has already won a larger share of the single-aisle market than expected, leaving the usual 50/50 split with Boeing skewed toward Airbus, now on 60 percent. Experts say a further land grab could have unpredictable consequences for both.
“Boeing can’t accept market share below 40 percent. If the MAX fails, Boeing has to do something fundamental and Airbus has to respond,” Morris said.
That was Tim Hepher reporting at Reuters. A similar kind of duopoly has been shaping up across defense commodities. Major prime contractors know that they cannot reach too great a market share for fear that their competitor will start under-pricing contracts in a desperate bid to claw their market-share back.
Another issue is that anti-trust regulators can be trusted to break up any firm threatening monopoly. A tit-for-tat is good for business, it keeps everyone comfortable. Similarly, government source selection boards are not oblivious to considerations of the industrial base.
Lockheed Martin and Boeing had a duopoly in the US for space launch services until their divisions merged into ULA in 2006. The joint-venture had a monopoly on launch until Space X entered the area. Perhaps another reason for firms to preserve a duopoly structure is also to prevent new entrants. Once you have a monopolist, their large bureaucracies look ripe for disrupting. Better to keep the enemy you know then to make space for an enemy you don’t know.
If there was enough capital to go after space launch, you’d think there’s enough capital to go after commercial aircraft. Maybe there is a lack of identified talent willing to go after the prize. Certainly, however, there is such a backlog that any investor knows that if you build it, they will come
One question is whether defense-only technologies offer the enticing incentives for new entrants, even if the regulations and other barriers to entry were not an issue. Perhaps only dual-use technologies can entice entry, like it did for Space X. But once established in that market, the entrant could expand to defense-only technologies. It is another question, however, whether defense-only work creates an organization that cannot compete commercially, the original purpose of entry.
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