By Veronica Chiaravalli
On June 14, 2024, nine days after Boeing’s first human launch, NASA revealed that the two astronauts were stranded at the International Space Station due to a technical malfunction with the spacecraft. Fast forward to August 24, 2024, a solution was found through the astronautics company SpaceX, Elon Musk’s latest business endeavor. In partnership with NASA, the astronauts are set to come back in February 2025 aboard SpaceX’s Dragon spacecraft. As this emerging private company continues to establish itself in the space industry, it is natural to pose the question: how close is SpaceX to a monopoly?
A monopoly is defined by various characteristics in market share, barriers to entry and market performance over time. Generally, but not necessarily, the US court views a 70% market share, along with high barriers to entry, as evidence of a monopoly. While monopolies are not illegal per se, the monopolistic behavior of a firm can be troublesome. Indeed, firms with monopoly power can outcompete new and existing firms within the industry and sell lower quantities of goods at higher prices, creating unfavorable outcomes in the market. For example, a lack of competition decreases the incentive to invest in R&D as firms face less pressure to find innovations capable of outcompeting their rivals. This is particularly relevant to the space industry. Consider the 20th century US-USSR space race during which, the intensity of the competition, drove rapid technological improvements in a short period of time. In this case, a reduction in competition would have likely slowed down innovation to undesirable levels.
This being said, can we consider SpaceX a monopoly? Given its market share and growth, the answer seems positive. As of June 2024, the 22-year-old company has been valued at $210 billion, positioning itself as the most valuable in the industry in terms of market capitalization. Most importantly, its number of operations significantly outweighs those of its competitors. Between the years 2018-2022 SpaceX had the greatest number of launches amongst US space companies, holding 78% market share by 2022. In the subsequent years, the company has continued to grow, accounting for 80% of all the material launched into orbit during 2023. This success mainly comes from the impressive innovations SpaceX has introduced to the market, allowing the firm to significantly cut launch costs. Indeed, the company’s rocket Falcon 9 has revolutionized the industry by containing a booster that can be reused over 10 times with minimal maintenance between flights. This has allowed SpaceX to amortize costs of production: with 60% of the marginal costs coming from building the rocket, the ability to reuse Falcon 9 significantly reduces this cost for the following launches. This is important as lower production costs give the company a competitive edge over other firms that may not have the same technology. In other words, the innovating firm will be able to sustain costs the rest of the industry cannot compete with, gaining the ability to produce higher quantities at a profitable level.
The barriers to entry present and maintained by SpaceX in the launch market are another indicator of a monopoly. By nature, the space industry has high barriers to entry including high fixed costs and long development periods, which have limited the number of firms in the market even prior to SpaceX’s take-off. However, the firm’s dominance in the industry has increased these barriers through it’s essential ties to government agencies and strategic launch schedules. Indeed, SpaceX has earned the trust of both NASA and the Pentagon with which it has collaborated numerous times. Most recently, the company has signed an $843 million contract with NASA to carry out the deorbit of the International Space Station in 2030. Not only does this contract show the monetary advantage agreements of this caliber bring to SpaceX, but it also illustrates NASA’s trust that the firm will successfully carry out such a delicate operation. It is this trust that makes SpaceX difficult to compete with, creating a significantly high barrier to entry and asserting the firm’s dominance in the space industry. The company’s launch schedules provide another barrier to entry which hinders potential competitors: by the end of 2024 SpaceX seeks to have completed 148 launches, implying one launch every 2.5 days. This is an unsustainable schedule for any other firm: in 2022, of the 78 US-based launches only 6 were from firms other than SpaceX. Given the latter’s notable schedule, it is logical that most customers will prefer SpaceX: not only does the firm launch material in orbit at lower costs, but also in smaller time frames. This significantly limits competition in the launch market, allowing the firm to capture more of the industry’s demand, thus drawing it closer to a monopoly.
Finally, another way in which SpaceX appears to engage in anti-competitive, monopolistic behavior is through its ride-sharing program. Since its implementation in 2021, the SmallSat Rideshare program has launched 1,000 smallsats for more than 130 customers. The program consists in launching smaller loads of material from different clients using one Falcon 9. Indeed, one Falcon 9 has a capacity of 22,800 kg, given not all customers will require this quantity of kg, ride-sharing allows the company to jointly launch smaller quantities of material belonging to different customers using the same vehicle. While this program has provided a cost-effective alternative for consumers in the industry, it has significantly challenged small launch companies leaving them unable to match SpaceX’s prices. Indeed, the firm charges only $6,000 per kg, considerably undercutting smaller firms’ prices. This pricing strategy has been interpreted by industry officials as a tactic to limit competition from emerging competitors, especially given the small secondary revenue the program yields. In support of this, in his article for The Sling economist, Hal Singer estimates that launching at such low prices “would not cover the incremental costs” and would in fact be “predatory”. This allegedly anti-competitive behavior by SpaceX thus suggests that the company is behaving like a monopoly.
Through the points explored so far, it is clear SpaceX holds a major cost advantage over other firms in the industry, which has allowed the company to attract higher demand. Nonetheless, this is not enough to define SpaceX as a monopoly. Indeed, an important characteristic of monopolies is their intentional production of lower quantities of goods at higher prices. In this case however, SpaceX has been charging lower prices with respect to average industry prices. As of April 2023, Falcon 9’s launch price is $1,200 per pound of material sent into orbit, more than eight times cheaper than launches by fellow astronautics company Rocket Lab, priced at $10,000 per pound. Seeing this, it is clear how SpaceX has partly grown its market share. By charging lower prices, the firm has attracted more demand in contrast to other firms. This is important because when analyzing the pricing of products, the company doesn’t seem to be engaging in typical monopolistic behavior. Instead, through its technological developments, it is challenging the industry to innovate and compete at lower prices. In support of this, the CEO of the aerospace manufacturer Rocket Lab, Peter Beck told The Washington Post: “(Without SpaceX) I don’t think Rocket Lab would exist, to be honest with you, because they blazed the path that said space can be commercial and space is investable”.
Moreover, there have been various occasions in which SpaceX’s behavior has been opposite to that of a monopoly. Indeed, the company has often aided other firms in the industry, launching the latter’s satellites using its own vehicles. For example, when Amazon seemed unable to launch its satellites in the required timeframe, in December 2023, the tech giant purchased three rockets from SpaceX in order to meet its deadline. This is evidence of sportsmanship by SpaceX which is a direct competitor of Amazon’s satellite project Kuiper with its own program Starlink. This challenges the anti-competitive motives it seemed to pursue through it’s ride-sharing program. Moreover, this is not the only time SpaceX has acted in favor of other astronautics firms. In March 2023, the company launched OneWeb’s satellites, followed by Viasat’s satellites in May of the same year. In relation to this, senior fellow at the American Enterprise Institute Todd Harrison tells The Washington Post: “SpaceX is the dominant player in these markets, but they’re not being anti-competitive […] they are just winning on the basis of how quickly they innovate”. This quote summarizes what has been looked at so far: SpaceX’s collaboration with other firms serve as evidence against monopolistic behavior, suggesting instead that SpaceX has taken on a quasi-savior role for firms that rely on its services.
All factors considered, SpaceX cannot yet be deemed a monopoly. While its ride-sharing program and barriers to entry contribute to SpaceX’s increasing market share, these factors do not provide enough evidence that the firm is exhibiting monopolistic behavior. More importantly, it is the technological innovation SpaceX has introduced to the industry to have driven the firm to success, undermining fellow astronautics companies. For this reason, whilst it has not established itself as a monopoly yet, the firm’s dominance and potential should not be overlooked. If other firms fail to innovate quickly, SpaceX can solidify its position as a monopoly.
The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.
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