The Aircraft’s Dilemma: Boeing v Airbus
In the ever-increasing market of commercial aviation, the two global development leaders, Boeing and Airbus, are facing a head-to-head battle over the capitalizing potential of “superjumbo” aircraft. As continually increasing demand in airline passenger capacity has driven down costs over the past few years, a tipping point has been reached in the potential payoffs of implementing enhanced-capacity aircraft of over 500-1000 passengers. According to Boeing officials, passengers circumventing the commercial viability of larger jets by choosing direct flights through international airport hubs such as JFK, London, and Singapore have made the business potential for large capacity airliners infeasible. On the other hand, Airbus has claimed a staggering 1,400 in potential superjumbo sales. At the core of the battle, is the “Developer’s Dilemma,” a game theory variant of the prisoner’s dilemma where market cooperation is unlikely for sustaining growth even if it’s in the best interests of both entities.
As discussed in class, this conflict can be decomposed into a two-player game whereby each player, Boeing or Airbus, has two choices to either invest or not invest in the development of increased-capacity airliners. If only one of the two chooses to invest, that company will reap massive financial benefits, if both invest then market losses will accrue for both, and if both elect not to advance, then an overwhelmingly large potential market will be left unexplored. To avoid mutually assured losses due to the intrinsic nature of the prisoner’s dilemma, both companies formed a joint team effort to develop large commercial transport vehicles, though its ultimate implementation proved to be difficult. Boeing elected to capitalize on its current market dominance in the mid-capacity (400 passenger) aircraft and delay the implementation of superjumbo jets to gain monopoly status in that sector of the aviation business, directly inhibiting joint efforts with Airbus. Although game theory suggests cooperation is generally in both players’ best interests, Boeing’s deviation from the two players’ agreement reassures the detrimental competitiveness of a game where mutual losses prove to be inevitable.
article: https://www.strategy-business.com/article/15872?gko=be9cb