Airbus-boeing

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 : [phone] Fax : [phone] [e-mail]

Laurent Germain
Toulouse Business School [e-mail]

November 2007

Abstract
There is an extensive literature dealing with the share price reaction of competing 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 same sector. 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 reactions conform 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 Frau and