This paper analyses the case study of Space X, an American space exploration company, in relation to the concepts of macroeconomics. It starts by summarizing the case study of the space exploration company before it proceeds to analyze the contributions of the company to the industry according to concepts of macroeconomics such as market structures, aggregate demand and aggregate supply, employment and unemployment, and inflation. The paper reports that the entry of Space X into the space exploration industry is a significant force towards breaking the oligopoly market structure that the industry has been experiencing for decades when only NASA and federal funded companies such as Boeing and Lockheed Martin dominated the space exploration industry. It also reports that the entry of the company into the industry has contributed to the raising of the aggregate supply, which had reduced the costs of space exploration and raised the aggregate demand for the services offered. In addition, the paper demonstrates that the entry of Space X into the industry will raise the levels of employment especially to the youth in the US and counter the effects of inflation because it controls its own supply chain.
The National Aeronautics and Space Administration (NASA) has been the only player alongside other federal funded companies, Lockheed Martin and Boeing, in the space transportation and exploration industry for several decades (Chaikin 2012). The companies have benefited from a heavy funding from the federal government, but the incentives have not been effective in lowering the costs of space exploration. The companies considered that their revenues would be lowered significantly if they cut down on the rates of their expenditure. Therefore, private firms that wished to or operated satellites, such as the telecommunication firms, had no option but to bear the heavy costs charged by the key players of the industry to orbit their satellites in space. However, the entry of Space X, which Elon Musk founded, has been recognized as a significant cause of disruption to the privileges that the companies enjoyed; the firm set out to lower the costs of space access to private and governmental institutions (Space X website 2017). The firm became the first privately funded organization that would send astronauts to the International Space Station in 2012 (Space X website, 2017). Normally, NASA would charge a cost of $1.6 billion for such a project, but Space X would so at reduced prices (NASA, 2012). For example, Space X charges as low as $61.2 million (considered low when compared to that of NASA) for companies that wished to launch a telecommunications satellite into space, which experts reported to be an approximated $4,653 of each kilogram of such satellite (Fernholz, 2014). In comparison, a joint company of Boeing and Lockheed Martin, United Alliance, charged their clients between $14,000 and $39,000 for each kilogram (Fernholz, 2014). To launch a satellite using Space X Company is now even cheaper than doing so using Long March, which is a Chinese owned rocket. It is for this reason that Space X company has been able to win some approximated $7 billion worth of contracts from its clients such as the US Air Force, AsiaSat, and Orbcomm (Space X, 2015).
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The case of Space X and the space transport and exploration industry can be analyzed according to different concepts of macroeconomics. For example, the case can be interpreted according to the perspective of the market structures. There are four types of market structures, monopoly, oligopoly, perfect competition, and monopolistic. The case of the space transportation and exploration industry falls under the oligopoly market structure. According to Norman and Thisse (2000), an oligopoly is a type of market structure in which there are a few firms serving a large market. An oligopoly is distinguished from a monopoly in that the latter has only one firm serving a large market. The case of the space transport and exploration industry had only three players, NASA, Boeing, and Lockheed Martin. The three firms controlled the whole market, which means that they made decisions on the prices of their services at will. This case scenario meant that clients would not access their products and services at lower prices than when there were many supplies (companies) such as is the case with the perfect competition and monopolistic market structures (Norman and Thisse, 2000). The players in the industry reached a consensus concerning the prices of their services as opposed to the monopoly in which the firm would fix its own prices. These firms further made the entry of other players into the industry quite difficult since they controlled the supply chain of their products within themselves. For example, Lockheed Martin would make engines for rockets, NASA would provide the launch pad, and Boeing would design the rockets before they were launched into space.
However, the entry of Space X into the industry meant that the company had more players, which disrupted the oligopoly structure. Nevertheless, it is not easy to argue that the industry is no longer an oligopoly, but the prospects of the future indicate the likelihood of such a transformation. One thing that the company has done since its entry into the industry is to cut down on the costs of operation that the other companies have been experiencing. The firm has been able to achieve such success with innovative technologies. For instance, the ideas concerning the need to reduce the costs of space travel underpinned the manufacture of the rockets owned by Space X. In addition, the firm has a relatively short supply chain since it has a vertical integration that enables it to manufacture 70 percent of its rockets in-house (Space X, 2013). This short supply chain has reduced the costs that the firm would have encountered if it were buying space components from conventional vendors (Space X, 2013). The use of new technologies such as 3D (three-dimensional) printing has been the cause of such success. The company further acquires products and components that they cannot produce from vendors who have never ventured into the space exploration industry and test them before adoption (Space X, 2013). This means that the company has been able to keep the costs of purchasing and production of the components for its rockets as low as possible. In addition, the fact that the company has a vertical integration means that it has a significant control of its costs, which has allowed it to offer services at reduced prices compared to the traditional players.
The entry of space X into the industry directly means that it has raised the aggregate supply of the space exploration services since more firms have found the venture to enter into the space travel industry lucrative. Aggregate supply relates to the total of all products and services that all the companies within a given industry are able to supply to the market at the prevailing market prices (Stackelberg et al., 2011). There are now four players in the industry, which means that more clients are now being served, which is evidenced by the numbers of client tenders that Space X has attracted from markets outside the US in addition to the domestic ones such as the US Air Force (Space X, 2015). The increase in aggregate supply has also raised the aggregate demand for the services offered by the companies, which stems from the simple laws of demand and supply and how they interweave into each other. The lowered prices of the aggregate supplied services into the market have attracted an increase in the aggregate demand from the clients. It is prospected that a further drop in the prices of the space exploration and travel services will attract an entry into the industry of new firms. The logic is simple; the traditional companies will be forced to lower their price, which means that they will have to reduce the costs of operation significantly. This move will also mean that the firms will give up the control of their supply chain, which they have maintained amongst the three of them, and allow more companies to enter the industry.
The company has also increased the number of employees in the space travel and exploration industry. For instance, NASA employees approximately 18,000 workers in the US and abroad, Lockheed Martin employees 97,000 employees, and Boeing employs about 150,500 people (NASA, 2017; Lockheed Martin, 2017; Boeing, 2017). Space X’s entry into the industry means that 4,000 more workers have been added to the industry, and most of them youth since their average age is 30 years (Greenfieldboyce, 2012). It means, therefore, that the company is a huge relief to the federal government towards the reduction in the rates of unemployment in the US. The company has also come in handy to tackle the issue of youth unemployment, which has been occasioned by the fact that more youths graduating from college cannot get sustainable employment. The increased rate of employment means that more youth will be kept away from crime and other issues related to unemployment.
The entry of the Space X is likely to improve the economy of the US, which heavily relies on manufacturing. For example, the entry of Space X means that the US will be able to increase its Gross Domestic Product (GDP) because it literary means that more products are now being produced in the economy than when there were only the three traditional players. Gross Domestic product relates to the total value of all goods and services produced within the boundaries of a country (Stackelberg et al., 2011). Space X operates in the US, which means that its production affects the GDP and the economy of the US directly. GDP figures are used as one of the indicators of the performance of the economy of a given country. For example, higher figures of the GDP will mean that the economy of a given country will be operating positively while reduced figures will mean an economic recess. It should also be noted that the US would be able to collect more corporation tax; a type of tax charged on the profits that companies make. The improved tax collection would also mean that the country would fund more projects that will improve the economy such as education and health. In addition, a better-performing economy would also imply that the country would manage to keep the rates of inflation as low as possible through the regulation of the prices of products within the economy.
In conclusion, the entry of Space X into the space travel and exploration industry has lowered the costs of such activities for humankind. The company has disrupted the oligopoly market structure that the traditional firms have been enjoying for long through innovative technologies and a control of its supply chain, which have enabled it to offer the space travel services at relatively lower prices. The effect of the entry of Space X into the market is not limited to cost effectiveness alone. It is projected that it will cause the entry of new companies into the industry, which means more employment opportunities, reduced inflation levels, increase the aggregate supply and demand, improve the GDP, and the economy at large.
References
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