Strategic Interactions Ryanair & Easyjet Don’t Be Blinded by the Price, Sunglasses to See the Whole Picture

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Strategic interactions
Ryanair & easyJet
Don’t be blinded by the price, Sunglasses to see the whole picture

Table of Contents:
1. Introduction………………………………………………………………………. 2
2. Game theory – A strategic decision………………………………………………. 2-3
3. Game theory related to real-life decisions………………………………………… 4
4. The market structure of the budget airline sector…………………………………. 4
5. Factors affecting competition between budget airlines……………………………. 5
6. The big picture – How full- service airlines affect competition…………………… 5-6
7. Conclusion…………………………………………………………………………. 6

1. Introduction
The airline industry has always been a fiercely competitive sector. Since the invention of low-cost carriers, also known as no-frills or
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What would Ryanair do? How would easyJet respond? If easyJet assumes that Ryanair is going to increase its frequency of flights from London Heathrow to Hamburg, its best solution would be to raise its frequency as well; so both would earn a profit of £1000. If easyJet would in this case remain with its current flights, Ryanair would make £1000 more profit. If Ryanair chooses its second available strategy namely to continue its current flight rate, easyJets best response would be to raise its frequency as well. On this occasion easyJet would make a profit of £1500 and Ryanair only a profit of £500. This leads to the conclusion that no matter what Ryanairs preferred strategy is, easyJet will do better in increasing its flight frequency. As this game is perfectly symmetric the same solution is given for Ryanair. Their dominant strategy is to increase its flight frequency as well. With having two dominant strategies, there is a Nash equilibrium given for increasing the frequency of flights. The payoffs for each player would be £1000 and there would not be any incentive for them to deviate from this result. It shows that the best strategic decision in this game is given by a solution where no competitor has the incentive to change his strategy given the other competitors’ strategy, here to increase the flight frequency.

3. Game theory related to real-life situations
Game theory cannot always predict reliable outcomes for real-life situations as it is more an

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