A Market for Airplanes Has Only Two Players: Boeing and Airbus

Essay

A market for airplanes has only two players: Boeing and Airbus. They are both trying to decide on a pricing strategy of a new large jet capable of carrying 400 passengers. If both firms charge a high price for their planes, then each firm will experience a 10 percent decrease in profits. If both firms charge a low price, then each firm will experience a 15 percent decrease in profits. If Being charges a high price and Airbus charges a low price, then Being will experience a 18 percent decrease in profits and Airbus will experience a 10 percent increase in profits. If Airbus charges a high price and Boeing charges a low price, then Airbus will experience a 17 percent decrease in profits and Boeing will experience a 10 percent increase in profits.
(i) Construct a payoff matrix for this game.
(ii) Determine whether each firm has a dominant strategy and, if it does, identify the strategy.
(iii) Determine the optimal strategy for each firm.