Question

There are two firms that produce large commercial airplanes, namely, Boeing and Airbus. Boeing and Airbus have different flight control systems, with many pilots preferring one system over the other. The Airbus A380 has a double-deck design that can hold up to 840 passengers and sells for $375.3 million. By contrast, the Boeing 747 can hold up to 568 passengers and sells for $317.5 million. What key conditions of the perfect competition model are violated in the large commercial airplane market?.

Answer 1

The first condition that has been violated is differentiated products by these two players that is not the part of perfect competition model. It leads to the violation of another condition that is firms becoming price setter rather than price takers as that of perfect competition model. The third violation is the entry barrier. Building large planes and making their price to be competitive, can easily drive out smaller players. So, it is the violation of free entry and exit rule, applied in the perfect competition model.