SpaceX launch – an economic lesson

These two things don’t seem related.  That’s why I’ve ignored watching the news on the launch until catching up with the CNN student news today. So, thanks Carl for reminding me about such an important event.

Indeed, the launch of  The Falcon 9 rocket along with the Dragon capsule by SpaceX company at 07:44 GMT on Tuesday May 22 is the first commercial rocket launch in the history.

But what is the economic lesson from this? We have to look at NASA for the answer:

Right now NASA has to pay 63 million dollars to Russia to flight one astronaut to the ISS. So it is like an oligopoly market of space rockets where Russia is the cheapest seller comparing to Japan, Europe and USA itself. Conceivably, the price is hefty.

NASA certainly wants to lower the price. What can it do? It creates a competitive market for the low earth orbit business.

– NASA ended its shuttle program in 2011

– NASA’s programs support Blue Origin, Boeing , SpaceX, Sierra Nevada and Orbital (OSC). The companies then have to compete for contract of taking cargo (and astronauts in a near future) to ISS.

– With 7 seats aboard the successful Dragon capsule, SpaceX is predicted to offer the price of $20 million per seat to ISS.

And that price is not yet a competitive equilibrium price.

Perhaps I will briefly talk about this tomorrow in microeconomics class.

P/S: More details of the story could be found on The Economic Times.