Question
Boeing Corporation and Airbus Company are two companies that compete in the production of passenger jet aircraft. They have the option of increasing or not
Boeing Corporation and Airbus Company are two companies that compete in the production of passenger jet aircraft. They have the option of increasing or not increasing R&D (research and development). The following is the change in profits in millions of dollars:
Profits for Airbus Company (A) | |||
Profits for Boeing Corporation (B) | Increase its R&D | Not increase its R&D | |
Increase its R&D | B: $30 m A: $30 m | B: $80 m A: - $20 m | |
Not increase its R&D | B: - $30 m A: $90 m | B: $30 m A: $40 m |
Given that this is an oligopolistic industry with each firm closely monitoring the other's predicted strategy, answer:
a) What is the most likely outcome? Explain the reasons briefly. In your response, you may use the concept of the "prisoner's dilemma."
b) Would the outcome be different if this R&D game was repeated every year?
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