In class, we have discussed the
effects of subsidy imposed by governments in the aerospace industry, which is
between Boeing and Airbus. The Battle ofthe Big Boys: A Critical Analysis of the Boeing Airbus before The WTO, a
working paper, in which the author introduced the dispute caused by the
implement of subsidy between the two big boys, Boeing and Airbus, and gave a
critical analysis of making decision in the future which will have an deeply
impact to the whole industry.
The commercial jetliner industry,
which have been locked in a two horse race since the 1980’s through mergers and
acquisitions in the industry, which led itself to be a state of duopoly. For
the reason of that Airbus is appealing to be an undeniable champion in the
market, the dispute and standing feud surpassed from between two companies into
one of the most high profile trade dispute around the world. The stakes
increased dramatically when both involving countries sued each other at the
WTO, primarily trigged by an alleged grant of illegal subsidies by the
governments of both parties to the two respective competitors.
According to this article, the
author argued that there are erroneous messages sent out to the world
struggling for control in a duopoly market, when liberalization and
globalization have been a dominant trend worldwide, even if it is one of the
longest and expensive conflicts in the history of international trade.
Although, the two parties are in
compliance with the rules, there are still chances that one or both the parties
would violate the terms unilaterally, leading to a provision of subsidies continuously.
Additionally, with the resurrection of other countries in the relevant
industry, there is an international cordial solution needed to be achieved with
all the players involved.
To my perspective, currently, with
the impracticability of the complete withdrawal of subsidies, the significant
objective of the WTO is to prevent a thoroughgoing subsidy war, which is costly
and will results in a historically-improved distortion in the whole industry.
Both Boeing and Airbus act like they only care about complete control of their respective markets and getting it at all costs. The governments involved are also willing to do whatever it takes, even if it means doing something illegal according to WTO regulations. If either Airbus Or Boeing was able to remove each other from the picture they would have a monopoly. They could then directly control and influence prices. They could set standards. In the end, they could completely control everything in their market. What should be the right course of action to avoid a situation in which there is a monopoly? or how can we eliminate the illegal subsidies in the first place?
ReplyDeleteIt seems like this is a good extension of the game theory examples we have done in class. Suppose Boeing used the strategy of being the first mover to use a subsidy in order to gain the advantage. This could then be countered by Airbus with an even larger European subsidy to gain back the advantage. Perhaps this is the reason for the subsidy war that has led to the use of illegal subsidies. I think the only way to prevent this subsidy war between Europe’s Airbus and America’s Boeing is through the WTO. If the WTO were to step up and outlaw all subsidies in the aircraft industry, or at least regulate them better, this rivalry will be less heated.
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