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Market Competition and Share Prices: The Case of the Airbus-Boeing Duopoly1
Nadine Galy
Toulouse Business School 20 Bd Lascrosses 31068 Toulouse Cedex 07 Tel : 05-61-29-49-51 Fax : 05-6-29-49-94

Laurent Germain
Toulouse Business School

November 2007

There is an extensive literature dealing with the share price reaction ofcompeting companies within the same sector upon the announcement of important information. Our article studies announcements of new airplane orders and measures their impact on the share prices of the relevant airplane maker and its competitor. Our research is the first, to our knowledge, to examine the repercussions of events that have a direct impact on the profits of companies within the samesector. We put forth a series of hypotheses on the share price reaction of Boeing and EADS (parent company of Airbus) to their own order announcements and to those of their competitor while assuming, for the sake of simplicity, an absence of strategic effects. Our sample covers the period from the stock market debut of EADS in July 2000 to 31 December 2005. We show that the share price reactionsconform to what one would expect, and we observe that the estimation of market reaction to new airplane order announcements is of reasonable amplitude. Moreover, it appears that the hypothesis of an absence of strategic effects is accepted. Our study highlights the difficulty of deducing the valuation the market makes of sales, even very big ones, from only the study of share prices.

Keywords:Duopoly; Event study EFM Classification Codes: 350; 360

We would like to thank Yves Aragon, Vladimir Atanasov, Kheira Benhami, Sylvain Bourjade, Brian Kluger, Hervé Passeron, Barbara Petitt, David Stolin, Jacques Tournut and the participants in the “Air Transport Research Society World Congress” (Toulouse, July 2003) for their astute comments and constructive remarks. We also thank Diego Frauand Elise Maigné for their help in data collection and SAS programming.





Boeing, founded in 1916, was the undisputed leader of commercial airplane makers for several decades. However, over the past fifteen years the European manufacturer Airbus, established in 1970, has entered into increasingly aggressive competition with Boeing and, from 1999, has consistentlycaptured 50% of the market for airplanes of over 100 seats.

The aeronautic industry is a very specific sector, one that, in particular because of its economic weight, is considered highly strategic: it is important in terms of jobs, development and international trade. Moreover, the barriers to entry are so high that competition takes place only between the two giants, making the rivalrybetween Airbus and Boeing a fascinating example of a global duopoly. Our article addresses one aspect of the competition2 between the two aircraft makers. We noted for the period July 2000 – December 2005 the announcements of new orders that the airline companies placed with each of the two firms, and we then checked the impact of these announcements on the market capitalization of the twomanufacturers3. Thus, by studying the


According to Porter’s 5 forces model (1980), a strategic analysis tool used to study the value of the structure of

an industry, analysis of competition identifies 5 fundamental forces: 1. rivalry between competitors: in the framework of the Airbus-Boeing duopoly, this is expressed in terms of product range and cost effectiveness (value for money) 2. customers:in the aeronautic sector the absence of intermediaries between manufacturers and airline companies facilitates negotiation 3. suppliers: still have some negotiating power 4. potential new entrants: unlikely given the high barriers to entry in the sector 5. threat of substitute products: unlikely in the aeronautic sector, at least for long-haul aircraft (short-haul airplanes could possibly face...
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