Abstract
The airline industry is one of the most important sectors of every major economy especially for the advancement of global commerce. Surprisingly the industry is dominated by two manufacturing industries, especially in the commercial plane production sector. The two companies’ Airbus and Boeing have been on each other’s toes for a long time now in trying to curve a niche in the market.
This paper seeks to examine some of the ways that the two manufacturers could come up with a pricing strategy that would not only be beneficial to their customers but that will also advance their own interests. In the analysis I will look at the market as an oligopolistic market, in addition, I will look at how the industry or the two companies can adopt game theory to advance their pricing strategies.
Oligopolies
An oligopolistic market is a market that is characterized by a few numbers of sellers of goods or services. In their actions, the oligopolies are always aware of the actions of other oligopolies. In this case, the decisions of a single firm or organization always affect the decision of other firms in the industry. I the same way the firm’s decisions are influenced or affected by the decisions of other firms in the industry.
Game Theory
Game theory is inherently a branch of applied mathematics. However, it is mostly used in the context of economic analysis. The game theory concerns itself with strategic interactions between various agents within a certain sector or industry. In this perspective, various agents choose strategies that will ultimately lead to the maximization of their returns given the strategies or decisions of others. It is better analyzed using the prisoner’s dilemma. It continues to play an important role in economics, cybernetics, and artificial intelligence.
Introduction
The aviation industry or air transport is one of the most sensitive industries today especially after the September 11 terrorist attacks. Almost all countries have tightened security within their airports through their local civil aviation authorities. Over the years, the industry has seen tremendous growth through good regulations, systemic facilitation guided by the use of ultra-modern information communication technologies, high safety standards as well as gigantic investments in the current trends of automation.
This facilitation is also compounded by good relations or well-structured consultative mechanisms with government agencies like the customs union employees who are situated in regional, local and international airports.
On the other side of the story, the provision of airport, aircraft, passenger, and cargo security has increasingly led to delays, passenger discomforts, intermittent earnings in the aviation industry, collapse of local tourism in many countries, as well as the loss of customer confidence in the services provided as well as goodwill.
Analysis
Both airbus and Boeing could use game theory to come up with pricing strategies. Either, unfortunately, the pricing strategies they take could be beneficial or not depending on the type of game, they play. This is because game theory studies the choices of optimal behaviors depending on the choices of other agent’s decisions to evaluate costs and benefits.
The two firms could either exercise any of the following game types.
Cooperative or Non-Cooperative
A cooperative game is one in which the two form binding commitments. For example, the legal system may require them to observe their promises. If the two firms can keep their promises then they are likely to reap more from the industry. In this kind of game communication on pricing strategies is of paramount importance to guarantee success.
Unfortunately, uncooperative games are better for the wider public since they allow for timely delivery as well as low costs.
Symmetric and Asymmetric
Symmetric and asymmetric games are usually played especially when the payoffs for the different players can be varied. In an economic or business sense, this is usually determined by whether the players have different market powers. In case we have a market leader and a market follower then the payoffs for the games they involve themselves in will be skewed. In this case, the market leader will almost usually be the winner in the give-take situation.
Zero Sums and Non-Zero Sum
In zero-sum games, the payoffs for any collaboration will always result in a fixed figure. This means that the best way forward is for all the agents not to play so that the status quo remains. If this is not done so then the benefit to one player will lead to an equivalent cost or loss to another player.
Simultaneous and Sequential
In the case of airbus and Boeing, this is the best game to play. This is because for this type of game s perfect information is not required. By using this strategy of game theory, the firms will always be competitive since each firm will be trying to be ahead of its competitor. Once this is initiated, the little information that one company acquires concerning the other will be used to effectively introduce a better marketing and pricing strategy.
Conclusion
Game theory has been effectively used since the 1940s to date. The theory has been used to analyze a wide range of economic data. This analysis has not been limited to the field of oligopolies but also, duopolies, auctions, voting patterns, bargaining among others.
References
Cathleen A. Berrick & David A. Powner. 2005. Aviation Security: DIANE publishers.
Henry H. Willis.2004. Evaluating the Security of the Global Containerized Supply Chain. Rand Corporation.