There have now been additional developments that impact the above 3x3 game with the
RJ option. First, the U.S. regulatory authorities have raised concerns about the 787 Mod
project and, because of this, it is no longer an option for Boeing (i.e., we now have a 3x2
matrix). Second, the EU has indicated that it will provide direct financial support for Airbus
but only for the RJ project. Effectively, this means that Airbus has the option to move first
but only if they choose RJ (accepting the EU support commits Airbus to the RJ choice); if
they do move first, then Boeing would move second and choose between Current and RJ.
Otherwise, meaning that Airbus declines the EU support and retains flexibility, Airbus and
Boeing will play the 3x2 simultaneous move game with payoffs from the above 3x2
matrix.
An additional complication is that EU financial support also has a payoff impact.
Specifically, EU financial support raises the Airbus payoffs with RJ on a 1-to-1 basis. This
means, for example, 75 in EU financial support would change the payoff of 350 at (RJ,C) to
425, and similarly for the other two entries (175 to 250 and 50 to 125) in the 3x2 matrix.
Airbus has asked your firm to provide consulting advice. As it turns out, the EU is offering
75 in financial support and Airbus must decide what to do. Based on past experience with
their interactions, Airbus and Boeing both expect that subgame perfection applies for the
sequential game and Nash equilibrium for the 3x2 payoff matrix. Your advice to Airbus is
to:
a. Accept the EU support, anticipating that Boeing will choose Current
b. Reject the EU support, anticipating that Boeing will choose Current
c. Reject the EU support, anticipating that Boeing will choose RJ