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That argument doesn't really hold water when applied to aircraft manufacturing.

Commercial jets are not indistinguishable commodities, there is a ton of variation in design and mission ideologies (control systems, materials, hub-and-spoke vs point-to-point, etc.)

The type of goods and barriers to entry are more similar to e.g. car manufacturing than to utilities like ISPs.

If Boeing and Airbus weren't artificially inflating administrative barriers to entry we'd definitely have more competition, and consumers would benefit, not suffer.

"If Boeing and Airbus weren't artificially inflating administrative barriers to entry we'd definitely have more competition, and consumers would benefit, not suffer."

From the article: "For Bombardier, development of its new C-Series of planes took more time and more money - $6 billion in all - than it had anticipated, requiring what amounted to a bailout from the governments of Canada and Quebec."

Stop and parse that for a second.

So? Big aircraft cost a lot of money and bring in a lot of money. Projects incur significant cost overruns in literally every industry.

> Why does the world need two very similar planes, such as the Boeing 737 and the Airbus A320? If there was only one plane manufacturer

traditional economist answer: without competing market forces, there would be no pressure for innovation? the high efficiency engines that customers have pressed for from the engine manufacturers, and other improvements which resulted in the 737MAX and a320NEO would not exist if there was a single monopoly small airplane. If there was a single monopoly small airplane people would probably be still flying around in a level of technology/fuel efficiency similar to a legacy 737-400.

Well, competition isn't the only incentive that can drive innovation though. In the case of public research, it can do quite the opposite.

Can you expand on this? This sounds very intriguing.

It sounds like Peter Thiel's argument about how natural monopolies can afford to invest heavily in R&D because they're financially comfortable. And how competitive industries supposedly don't offer the same room for research. I think he's mistaken on this but nonetheless it's a compelling argument in some cases.

Here's his essay where he expands on it: https://www.wsj.com/articles/peter-thiel-competition-is-for-...

There's also an argument to be made for Bell labs, back when Bell had a monopoly on the phone lines there were some amazing developments to come out of Bell Labs

The problem with planes is that research costs for a single product are often above $1bn. So you wouldn't create a new product just because you are curious or have a small team of scientists that discovered an opportunity.

Definitely agreed. I was just trying to point out why having more competitors isn't all good news, which might be counter-intuitive to "common sense" (and the article).

However, things get more complicated when you look at the other factors: fuel efficiency, cabin air pressure & humidity (related to jet lag symptoms), fuel price swings, etc.

Innovations and new discoveries somehow bring down the cost despite an increase of competitors. Having multiple competitors provide an alternative when one company chooses a design that has unforeseen problems: https://www.reuters.com/article/us-rolls-royce-hldg-engines/...

The "second-to-market" might also learn from the mistakes of the "first-to-market". This happened when IBM entered the PC industry in the early-80s. Compaq and DELL later when on to find ways to sell PCs cheaper than IBM.

Boeing is having trouble with some of the engines of the 787 (Dreamliner). It might have something to do with the bleedless air system they chose. While Airbus went a different direction with their A350. Boeing chose to use composite materials to save on weight and allow for more air pressure and humidity. Airbus followed up with the A350 because of the Dreamliner popularity, but chose a more conservative design in some areas.

Either way, the airlines that buy (ie finance) either one will save on fuel costs compared to previous models. With the "increased cost" of more than one competitor, airlines have a choice to help them deal with risks of a new design... and adapt to changing market conditions.

(Disclaimer: I am not an engineer or economist.)

Soviet Union bureaucrats also thought like this: Too many competitors is inefficient. We will save resources if we just have one shoe provider. Cut to the future: Russians notice how tiny Japan can build a better television than the might of the entire Soviet Union: http://articles.latimes.com/1987-02-01/local/me-580_1_televi...

> Boeing is having trouble with some of the engines of the 787 (Dreamliner).

if you really want to see "new engine trouble", compare the following engines' sales and recalls:

shitty engine, skip down to the engine removals section: https://en.wikipedia.org/wiki/Pratt_%26_Whitney_PW1000G

non shitty engine: https://en.wikipedia.org/wiki/CFM_International_LEAP

the CFM1000 has been a nearly unmitigated disaster for PW. Massive defects and removals from aircraft/recalls. It's reflected in its sales numbers compared to the LEAP as well.

Ouch. Well, those are some really bad engine problems.

So what you are saying is, the 787 engine problems isn't as bad as they seem compared to these other engines?

Any thoughts of the Rolls-Royce Trent XWB compared to the 787 engines?

Your post either doesn't really get what's going on with the engine thing, or is misrepresenting it.

If you're an airline and you want a 787 from Boeing, they'll offer you a choice of engines: you can get either the Rolls-Royce Trent 1000, or the General Electric GEnx.

The current issue is corrosion and fatigue in the blades of RR Trent 1000 engines, which has nothing to do with the bleed-air versus bleedless thing. And isn't the first time Rolls-Royce engines have had problems in recent years. The Qantas incident in 2010 involved an uncontained engine failure of a RR Trent 900 on an Airbus A380, and similarly triggered a massive surprise maintenance burden for A380s fitted with Rolls-Royce engines. That's what 787 operators who chose Rolls-Royce are facing now, though the majority of 787s delivered have had GE engines.

Thanks for clarifying that. You are right. Feel free to correct anything else. (I ran out of the time limit to edit the post with your corrections.)

This is (the person) J.P. Morgan’s “ruinous competition” hypothesis. It is not borne out by the literature. Competition attracts investment while reducing volumes; it works because through a combination of innovation and accepting lower returns, prices are reduced.

Increasing returns to scale isn't the only way unit costs can go down. Competitive forces typically incentivize companies to come up with new ways to increase productivity and reduce cost. Having even one competitor is enough to meaningfully reshape the incentives of a monopolist. But you may well be right about the negative utility of having 4 vs 3 companies in this particular industry.

Ownership/leasing costs are apparently only ~20% of airline costs¹. A big chunk of that will be the cost of manufacturing the plane. So the actual fixed costs aren't that bad.

1. about 40% of direct flight costs, which are 50% of overall costs: https://www.icao.int/MID/Documents/2017/Aviation%20Data%20an...

Meh. To that same point though, Boeing's net profit margin is only around 10%. Of course, 10% is pretty typical of any company, and doesn't seem to be any kind of huge amount coming from duopoly power. Compare to Visa, which has more like a 50% profit margin.

...But even if you considered all of that 10% profit margin comes from the powers the duopoloy affords them, then that's only 2% of airline costs (10% Boeing profit * 20% of airline cost).

Ownership costs are so low because utilisation has been improved greatly over the past decades. Especially short-haul planes are now in the air for 14-16h or more. That over a life-time of two decades or more reduces the per-flight cost to a minimum.

Austrian economists don't see this leadership as monopolistic. Instead, they rather call monopoly when there are state apparatus being used to restrict competition.

Basically, there is no evil doing in being a leader. This is clearly not the case for Boeing and Airbus because both have ties with military and state actors, but maybe in a free-market scenario it wouldn't be so different to what we have today.

https://www.youtube.com/watch?v=t01bAJFbGb4

Is there any formal distinction those economists make, or is it just a matter of "pretend it doesn't exist by calling it by a different name"? Natural monopolies can and do exist in markets as close to free as we can get.

No, it's not a matter of names; the Austrian school (not to be confused with economists from Austria) claims they don't actually exist, and that the examples usually given can be explained by governmental manipulation.

"There is no evidence of the "natural-monopoly" story ever having been carried out — of one producer achieving lower long-run average total costs than everyone else in the industry and thereby establishing a permanent monopoly."

https://mises.org/library/myth-natural-monopoly

If you can come up with a historical example of a natural monopoly you’ll have done better than the entire economics profession at doing so. We have many examples of local monopolies, government granted monopolies and companies getting very large shares of an industry by driving up quality and driving down prices but no unambiguous examples of natural monopolies arising in competitive markets. Large fixed costs and low marginal costs are usually cited as preconditions of natural monopoly but the US supports DHL, FedEx, UPS and the US postal service. Many municipal markets have had multiple competing utilities for multiple decades.

How about Norfolk Southern?

The vast majority of economists agree that natural monopolies exist, and economic theory from Adam Smith on describes how they form. To believe that the "entire economics profession" has failed to find a single historical example implies not only that the vast majority are wrong, but they're willfully ignoring the evidence (presumably because they hate freedom).

Additionally, the fact that nobody has shown a monopoly that didn't involve government somewhere along the line isn't evidence that monopolies don't exist without government, because governments have been involved in every private company ever created. It's like assuming "people would live forever if they never drank water, because everyone who ever drinks water eventually dies".

A natural monopoly is an organisation in an industry where the minimum efficient scale is more than 50% of the industry, such that it is impossible to have lower unit costs than the natural monopolist. This has never happened, anywhere, as far as my limited research has shown me.

Norfolk Southern from a cursory look at its Wikipedia page may have a local monopoly on rail transport of coal on North Anerica’s East Coast. This will enable it to charge slightly higher than competitive prices. It will not enable it to charge profit maximising monopolist prices because other companies can build their own rail lines and coal can be transported by truck. Local monopolies are contestable. You may have no actual competition but the price you can charge is limited by the fact that if you charge enough potential competition will become actual competition.

The concept of natural monopoly does not depend on government or private companies. It depends on minimum efficient scale being more than half of a market. If even the monopoly on violence, the core characteristic of a state, is not a natural monopoly, what is?

The minimum efficient scale doesn't need to be more than 50% of the industry, it needs to be beyond a size at which competitors are willing to invest.

The evidence that no one has successfully contested Norfolk Southern is evidence that it's a natural monopoly. The burden is on you to show that it's possible and there's some other reason it hasn't happened (and why it's okay that the free market is allowing a monopoly to exist).

>If even the monopoly on violence, the core characteristic of a state

Not sure why you brought this up. Can you explain how this relates to your argument?

If competitors aren’t willing to invest because the return on investment would be too low to make it worthwhile that’s one thing. It’s quite different from minimum efficient scale being so high that you can only efficiently have one supplier in a particular market. A local monopoly is not evidence of natural monopoly. A local monopoly has to worry about potential competition, a natural one doesn’t. Rail services in North America look like a natural oligopoly, not a natural monopoly. There are no particular welfare implications in those since if you can’t legally enforce collusion it doesn’t last. Plenty of oligopolies are competitive. Intel worries plenty about AMD.

If you search for Norfolk Southern competitors the following names come up, Union Pacific, Canadian National Railway Company, CSX Corp, Canadian Pacific Railway and Kansas City Southern[0]. Whatever that is it isn’t a natural monopoly.

Violence has high fixed costs and relatively low marginal costs. If the efficient number of states, violence monopolists, is so much greater than one why would we expect anything else to be a natural monopoly?

[0]http://financials.morningstar.com/competitors/industry-peer....

This is a well known economic fact and points to why economic niches rapidly form monopolies. These monopolies, once entrenched, can never be dislodged thanks to their economies of scale.

> The average lifespan of a company listed in the S&P 500 index of leading US companies has decreased by more than 50 years in the last century, from 67 years in the 1920s to just 15 years today, according to Professor Richard Foster from Yale University.

Oh.

Isn't this the motivation between all centrally-planned economies? No duplicated effort, maximum efficiency. Of course in a free market, the one company just ends up raising its prices to maximize profit; see ULA being the one viable rocket company prior to SpaceX.