Publication

This paper examines the effect of exchange-rate misalignments on competition in the market for large commercial aircrafts. According to the authors, this market is a duopoly where players compete in dollar-denominated prices while one of them, Airbus, incurs costs mostly in euros. The authors 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. They also explore the effects on the long-run dynamics of competition and 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.