The Prisoners' Dilemma in the Airline Industry

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The Prisoners’ Dilemma in the airplane industry Games of Strategy Home Assignment Tamás Seres Introduction 3 The Prisoners’ Dilemma 3 An Oligopolistic market: 5 The Case Study 6 Conclusion 8 References: 8 Introduction In today’s world the Prisoners’ Dilemma is a common phenomenon in business, politics and in social life as well. This paper will analyze a real life example. It will describe the airplane manufacturing industry and their two giant manufacturers: Airbus and Boeing. The two companies find themselves in a business environment where both parties take the others decision into consideration and act in respect of those. The companies can have two choices: to cooperate with each other for higher prices or to compete at…show more content…
As it is a price driven environment the prisoners’ dilemma present on this market will be shown through the Bertrand market model. According to an Internet article (Buzzle.com, 2011) the model can be described as the following: “Bertrand's theory describes a duopoly market in which two firms are competing with each other through a price war. As per the assumptions made, if the price of a good from 'Firm 1' is less than the price charged by 'Firm 2' then, all the consumers will buy goods only from Firm 1. And, Firm 1 will be able to cater to all the consumer demands. However, if Firm 2 also reduces its price making it equal to the equal to the price charged by Firm 1, then, the total demand and the total sale will be equally divided between the two firms. If the price war continues, then firms eventually will reach a point where they will charge a 'Marginal Price'. After reaching this point none of the firms can further lower their prices and will reach a point of stagnancy.” The model has several assumptions which are the following: • There are a minimum of two players on the market producing undifferentiated products • The firms independently choose their prices and not based on mutual agreement • All companies supply to all the demand at the changed price • Prices are set at the same time • Consumers buy
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