Game Theory: the Developer's Dilemma, Boeing vs. Airbus

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Committing large chunks of a company's resources to a single investment project is always a risky undertaking. It becomes even riskier when a competitor is set to do the same thing and the market is unlikely to sustain two rival products . This may appear to be the ration-ale behind the Boeing Company's much-publicized cancellation of the development of its "superjumbo," a whole new class of aircraft with room for 500 to 1,000 passengers. "The market isn't ready yet," announced John Hayhurst, general manager of Boeing's "superjumbo" project, early last year. According to a new Boeing study, customers choosing direct flights in smaller jets, avoiding the hubs of Singapore, London's Heathrow and New York's Kennedy International, were undermining the commercial viability of investments in super-large airliners -- investments that might well exceed $10 billion. Mr. Hayhurst estimated demand between 1997 and 2014 at below 500 craft, while Europe's Airbus Industry, Boeing's only remaining rival in civilian aviation, is still predicting sales of 1,400. At the time, Wall Street was impressed with such measured prudence, awarding Boeing with an immediate jump of more than $7 in its share price. But was Mr. Hayhurst really addressing the financial markets? As companies employ more and more sophisticated public relations methods, competition takes place increasingly behind a smokescreen. Appearances have become so deceptive that business intelligence itself is now a booming industry. Yet, in the time-honored tradition of Kremlin watching, even the best informants and the most plausible leaked documents may turn out to be part of a conspiracy ploy. Simple game-theory tools can go some way toward restoring common sense. People in business may not mean what they say but, unlike the secretive rulers of the old Soviet Union, they mostly make sense. Though both Boeing and Airbus engaged in successive puzzling activities in the "superjumbo" game, they may reveal in the end a...
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