Boeing is the sole supplier of aircrafts to all Asian airlines. Airbus is deciding whether to enter the Asian market and compete with Boeing. ● ● ● Airbus can take an (a) aggressive entry strategy which we refer to as E₁. Airbus can also take a (b) soft entry strategy which we refer to as E2. Finally, Airbus can completely (c) stay out of the market which we refer to as O(ut). Boeing can decide to engage in price war (P) or share (S) the market with Airbus Airbus chooses first between E₁, E2, and O, after which Boeing chooses between P and S. (i) If Airbus stays out of the market, Boeing gets 4, Airbus gets 0 (ii) If Airbus chooses E₁ or E₂ but Boeing chooses P, each gets (-1) (iii) If Airbus chooses E₁ and Boeing chooses S, Airbus gets 3, Boeing gets 1 (iv) If Airbus chooses E2 and Boeing chooses S, Airbus gets 2, Boeing gets 2 ● Moving second, Boeing knows whether Airbus has chosen to stay out or enter, but it does not know whether Airbus has chosen E₁ or E2. [Hint: think of information set]

Boeing is the sole supplier of aircrafts to all Asian airlines. Airbus is deciding whether to enter the Asian market and compete with Boeing. ● ● ● Airbus can take an (a) aggressive entry strategy which we refer to as E₁. Airbus can also take a (b) soft entry strategy which we refer to as E2. Finally, Airbus can completely (c) stay out of the market which we refer to as O(ut). Boeing can decide to engage in price war (P) or share (S) the market with Airbus Airbus chooses first between E₁, E2, and O, after which Boeing chooses between P and S. (i) If Airbus stays out of the market, Boeing gets 4, Airbus gets 0 (ii) If Airbus chooses E₁ or E₂ but Boeing chooses P, each gets (-1) (iii) If Airbus chooses E₁ and Boeing chooses S, Airbus gets 3, Boeing gets 1 (iv) If Airbus chooses E2 and Boeing chooses S, Airbus gets 2, Boeing gets 2 ● Moving second, Boeing knows whether Airbus has chosen to stay out or enter, but it does not know whether Airbus has chosen E₁ or E2. [Hint: think of information set]

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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