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Essay on Developing the World's Largest Commercial Jet

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Developing the World's Largest Commercial Jet

In this case, we will be analyzing strategic interaction between Airbus and Boeing, the two leading producers in the global commercial aircraft industry. In particular, we will be considering Airbus' proposed launch of the A3XX, their entry into the intercontinental jumbo jet segment, and Boeing's potential competitive responses to this entry. We will attempt to answer the questions: Should Airbus enter the jumbo jet segment? If so, how? And, what should Boeing do about it?[1]

An appropriate analysis of this situation requires the integration of a variety of tools and concepts to which you have been introduced both in this course and the rest of …show more content…

To simplify the game, we are going to believe Boeing's repeated claim that it will not build a superjumbo. With this assumption, Boeing's options are limited to launch the 747X or not launch and continue with 747. [3] Given the players and their potential actions, we need payoffs.

The payoffs for a formal game should be the net present values (NPVs) of the entry decisions made by each firm. To find the payoffs for each possible scenario, we need a separate cashflow analysis for each scenario where the NPVs depend on the competitive decisions of the rival firms. We then put the pair of NPVs into the appropriate cell of the entry game for each scenario and can solve the game as we have discussed in class.

Step 1: Find the Optimal Pricing Strategy for Each Scenario

In a particular scenario, if we set the prices for Airbus and Boeing to a particular level, the cashflow analysis in the spreadsheet will tell us the NPV associated with that set of prices. Unfortunately, if we change the prices, the NPVs will change. Before we can put the NPVs of a particular scenario into a game cell, we need to know the correct (optimal) prices for that scenario. You can think of this as a two-stage game. In the first stage, the firms choose whether to enter. In the second stage, they choose their optimal prices to compete in the chosen

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