JOINT ECON-S&P: Competition and Learning by Doing: Space Launch Industry; Dr Chenyu Yang (University of Maryland, College Park)

Abstract

We study the competition between space launch providers for government missions. In the model, a large forward-looking buyer repeatedly procures launch services. Dynamic sellers set prices and decide whether to innovate. Innovation reduces the cost of providing launch services. We estimate the model using data on the U.S. launch industry. Counterfactual simulations show that if Lockheed Martin and Boeing were prevented from merging, the equilibrium prices would be higher when firms experiences are low, and would be lower when firm experiences are high. The SpaceX entry significantly increases the innovation of a monopoly incumbent, but would modestly reduce the innovation of duopoly incumbents.