Strategic Responses to Used Goods Markets: Airbus and Boeing

Abstract

In this paper, I present a dynamic oligopoly model of Airbus, Boeing, and used aircraft markets and employ a unique dataset to examine the interaction between innovation, production, and the used goods markets. My findings show that firms increase the development of new products in response to used goods markets. Moreover, a reduction in government production subsidies has a minor effect on innovation, while a reduction in government R&D subsidies leads to a delay in innovation. Finally, a change in market structure from a duopoly to a monopoly decreases innovation in the presence of used goods markets.

Keywords: Innovation, Used-good Markets, Government Subsidy, Consumer Welfare

JEL Classification: L13, L11, D22, L62, L50, D43, O31