International Competition in Wide-Bodied Jet Aircraft

The international market for large commercial jet aircraft is about as far as one can get from the standard trade theory paradigm of static constant returns and price-taking competition. It is an industry in which the survival of firms depends on periodic introduction of new families of aircraft, and the introduction of a new family is marked by massive dynamic scale economies. A huge initial expenditure on development is followed by a steep learning curve at the level of the firm, a curve that industry experts believe lasts throughout the product cycle. The fixed cost and the dynamic increasing returns introduced by learning ensures that this is an industry in which only a few firms can profitably exist. In the world market there are only three significant manufacturers of airframes for jets that seat more than one hundred passengers. It is arguable that in the absence of government support there would be only one. For those who work on the “new ” trade theory that emphasize