Friday, July 02, 2004

Game Theory

In the IB class today we started with a classic case on game theory, Boeing Vs Airbus,
which described how these two major players in the commercial airlines business reacted to the possibility of
a future market in Very Large Airplanes (seating >=500 passengers).
Boeing being an existing player in 420 seater planes, could be considered the incumbent player, and the intuitively better suited to preempt others from entering this potential market. But as the analysis revealed, intuition can be wrong. The simple reason which comes to mind why Airbus was the actual preemptor, was the extensive subsidies offered it by the European government, however, that turns out not to be the cause of their entry. The answer evolves only through a game-theoretic analysis.
Game theory can be a bit confusing and difficult to comprehend, but it is an uncanny tool to predict outcomes in multi-player scenarios where the actions of one player are affected directly by those of another. The classic example of a simple game is that of The Prisoner's Dilemma. But it can get much more complicated that that!

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