Superjumbo Airplane Game Theory
https://www.strategy-business.com/article/15872?gko=be9cb
In this article, we can see a number of game theory dilemmas unfold concerning the two major airline manufacturers Boeing and Airbus. The context of this situation is that there was a failed joint development project between the two of a superjumbo jet that could carry up to 1000 passengers at a time. This development project was initially put into place because both realized that they were facing a prisoner’s dilemma had they attempted to tackle developing such a large aircraft on their own, so they decided to work together, but this cooperation then dissolved because of another dilemma.
Firstly, the initial prisoner’s dilemma expects that if both attempted to develop a superjumbo jet then the market would be too small and they would not make enough money to make up for the cost of development. In turn, if one decided to develop it and the other did not, then the developer would make a good profit by dominating a new market while the non-developer would be left without any profit. Finally, if neither decided to develop such an airplane than both would be left without making a profit.
Initial Dilemma
| Boeing/Airbus | Develop | Don’t Develop |
| Develop | Loss, Loss | Large Profit, No Profit |
| Don’t Develop | No Profit, Large Profit | No Profit, No Profit |
Thus, to avoid this prisoner’s dilemma, both airlines decided to work together to make a superjumbo jet. However, then a new prisoner’s dilemma arose. The suspicion arose that one manufacturer, Boeing, could simply be deceiving the other manufacturer, Airbus, and delaying Airbus by keeping them busy with the project so Airbus would allocate more time and money into building a superjumbo instead of tackling Boeing’s monopoly on the currently standard jumbo airplanes. So, now there was a dilemma in which if both developed a superjumbo they would both be faced with risk, because it was a new market and it could be too small, but Boeing would risk more because it could risk the new superjumbo market causing the older jumbo market to be obsolete and with it Boeing’s monopoly. However, if Boeing decided to not develop one they would lose out on a market that Airbus would then dominate. At the same time, if Boeing decided to develop the superjumbo while Airbus decided not to, Airbus would then lose an entire market as well to Boeing. Finally, Airbus had a huge problem if both decided not to develop the superjumbo as Boeing would then maintain the status quo and Boeing would just continue to dominate the market, meaning that Airbus would lose while Boeing would profit.
Second Dilemma
| Boeing/Airbus | Develop | Don’t Develop |
| Develop | High Risk, Risk | Possible Profit, Loss |
| Don’t Develop | Loss, Possible Profit | Profit, Loss |
Therefore, the decision to try to avoid an initial prisoner’s dilemma just lead to an even more complicated dilemma filled with more risk and complicated conditions of profit and loss. Ultimately, the game dissolved as Airbus announced plans to build a 550 seat airplane (Airbus A380) instead, while Boeing failed to counter this as they announced that they would build a stretched double-decker jumbo based on current designs, but were shot down by the two airlines that most desired larger planes (Singapore Airlines and British Airways) because Boeing’s designs were too outdated, thereby making Boeing’s costs for matching the A380 too high and prompting Airbus to manufacture the new plane.