> They’re far too vertically integrated.

In what sense? I work with a lot of Aerospace, Transportion and Logistics companies and I've personally seen tens of hundreds of companies that are suppliers for Boeing/Airbus. What do you think GE, United Technologies, Rolls Royce Aerospace, etc. all do?

Yes, there are hundreds of other manufacturers and many moving parts, which reminded me of SpaceX.

One of the reason SpaceX has been abled to save so much cost was that they made / design all the parts themselves, truly vertically integrated. And this has led to better design, lower cost, higher level of knowledge in every part of the system, and more innovation.

I remember there were so regulation that forbid AirCraft manufactures to do that, what was the rationale behind it?

> they made / design all the parts themselves, truly vertically integrated

Do you have a source for that? Even Tesla isn't really that vertically integrated (for example - its Gigafactory is a JV with Panasonic).

I thought the example of SpaceX was quit well known [1], and the reason why SpaceX Rocket in itself, excluding the cost reduction of reusable luncher were much lower.

There were also numerous article and Interview from Elon Musk himself confirming that.

[1] https://www.investopedia.com/news/how-spacex-reinvented-rock...

FTA

> Because SpaceX is a private company, it has not divulged the secret to its pricing.

?

> There were also numerous article and Interview from Elon Musk himself confirming that.

Do you honestly believe everything Musk says? He has a history of embellishing the truth.

I'm not saying SpaceX isn't vertically integrated, I just find claims surrounding anything Musk says dubious unless it's confirmed by 3rd party reporters.

They're far too horizontally integrated. Reducing vertical integration is part of their quality problem resulting from adopting black-box management, see:

http://seattletimes.nwsource.com/ABPub/2011/02/04/2014130646...

Is Airbus vertically integrated? It's quite spread out over Europe in production and some parts enjoy quite a bit of autonomy on design too.

Vertical integration means fewer middlemen driving up the margin on each part.

but it may also mean far less chance to innovate production practice.

If vertical integration is always good, the ideal situation is a single producer for any kind of product and no suppliers, which doesn't seem to work too well either.

Efficiency and security are always traded for one another. Unfortunately, markets will tend to the short term benefits so the pendulum will swing towards efficiency until it’s gone too far and something causes it to swing back.

Up to a point. But when you get to the point that an industry is so vertically integrated that only one entity can viably compete, you have a monopoly.

There's no monopoly here, there's a duopoly. Airbus and Boeing are in fierce competition with each other. On top of that, the Chinese are entering the fray too.

Efficient market theory would suggest that there is no margin in equilibrium, and what looks like margin is actually the cost of capital (which all companies, big and small, have to pay).

That's incorrect - you would only expect no "margin" in a perfectly competitive market, which obviously isn't the case in the market for airliners.

In markets where firms have market power, there is an explicit and well-studied phenomenon known as "double marginalization"[1][2], which is what the parent comment is describing. Vertical integration is one possible solution to this problem, although there are other approaches as well.

Double marginalization also occurs elsewhere in the air travel industry. Imagine I flew on American Airlines from Charlotte to London, and then continued on British Airways from London to Lyon. If both airlines set their prices independently, then they would both add a markup, and the combined price of the itinerary would be higher than the profit-maximizing price that a single airline would set. In this situation, antitrust authorities will often allow the airlines to form a joint venture and coordinate on price-setting. This reduces horizontal competition (because e.g. AA and BA are no longer competing with one another for passengers on JFK-LHR), but can provide consumer benefits if eliminating double marginalization allows airlines to set their prices lower on multi-airline itineraries.

[1] https://en.wikipedia.org/wiki/Double_marginalization

[2] https://mru.org/courses/development-economics/double-margina...

Economics is laughably bad at predicting real-world economic behavior.

That's too broad a statement. There are some theories in economics that work very well, like supply and demand, or arbitrage theory. The idea of the cost of capital is also a fairly well-trodden one, it is taught in business courses, used on wallstreet, and seems to work in practice.

I can't think of a single broad economic axiom or theory that doesn't depend—wholly or in-part—on the principle of ceteris paribus, which excludes their practical application to essentially everything in real life.

In a few cases, economic theories do a passable job of roughly mirroring real-world behavior, but that's the exception and not the rule.

>on the principle of ceteris paribus, which excludes their practical application to essentially everything in real life.

When a principle is violated marginally, conclusions made based on the principle are themselves violated marginally. You can't write off chemistry because relativistic effects violate the conservation of mass any more than you can write off economics because no two soup cans are identical.

Economics waves off secondary effects at an entirely different level than Chemistry.

Except efficient market theory is a bunch of bullshit that does not fit reality.

If you break both of them up too much, they may be unable to compete against a major Chinese manufacturer when it scales up.

>If you break both of them up too much, they may be unable to compete against a major Chinese manufacturer when it scales up.

This is a crucial point that so many people seem to miss. If you want to break up these companies (manufacturers, banks), they are going to get absolutely crushed in the global economy, competing against Chinese state-sponsored companies.

In the game theory of open global commerce, it pays to cheat.

Breaking up Airbus seems diplomatically implausible. The US doesn't really have the authority to, and the EU doesn't have any reason to want to.

The other is to force investment (either from them or through government) to a third vendor. Bombardier and Honda seem really interested in entering the space, and maybe Dassault can be dragged into it, but its capital intensive.

> They’re far too vertically integrated.

You really have to be ignorant about that industry to say that.

The Boeing 787 battery issues shows exactly that they're vertically dis-integrated to the maximum extent possible. So what you're saying is the completely opposite of the truth.