Thank you Chang jie,

So next I will explain the models that is used to study the rivalry between Boeing and Airbus.

The first model is the demand model.

In order to estimate the demand, for each airline, we calculate the utitility it will get from choosing each
aircraft. Then the airline will purchase the aircraft that gives it the highest utility. After we found the
aircraft picks of each airline, we can then derive the quantity demanded of each aircraft.

Utility is made up of several components,

Tau is the taste preference of the aircraft

If sigma is high, then means that there is market segmentation, an airline that prefers a wide body
aircraft wouldnt prefer a narrow body aircraft. A Wide body aircraft and a narrow body aircraft is not
substitutable.

So this model is called nested logit demand model. This demand model captures the effect of market
segmentation.

This is a suitable model as we indeed see market segmentation in the industry. Cross price elastic same
segment is higher than cross price across segment. So this means that when a particular model of WBA
increase in price by 1%, there is a greater increase in demand for WBA than an outside good. And this is
true across all industry.

But before we can need to derive the coefficients this is done by regressing the observed market share
of the planes to their respective attributes.

Price of aircraft is set to reflect quality , within group market share as well.

We would other variables that are independent of each other, Price of aluminium/ To attain more
accurate partial effects.

We study price markup to see the extent of price competition between the 2 rivals.

We found that when firm decide how much to produce, instead of only taking into account the current
marginal cost, they also consider the future cost savings as they become more efficient in production.

This additional consideration is known as the dynamic marginal cost.

Since we want the current marginal cost, we try to find the implicit current to dynamic marginal cost
ratio,d. When we multiply d to the dynamic marginal cost found earlier, we would be able to get current
marginal cost.

With the dynamic marginal cost, using this exogenous ratio we can compute the implied marginal cost.

We also see that as we increase the learning rate, markups during periods of market entry decreases.

B767 entered in 1983

B777 entered in 1995

If you were to compare to a single product firm to a multi product firm

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