Today we're going to talk about the
application of
game theory using Airbus and Boeing.
I even got a Lego airplane to
justify my point.
Just a quick recap on game theory,
if you need to you have not watched
the first video I just link it in the
comments. Game theory is basically
just strategic decision making and what
we want to do is really to analyze the
behaviors and outcomes of this strategic
decision-making. It's linked to token
ecosystem because you want to understand
how people behave, what's the outcome of
their actions, and from there you want to
understand what kind of
mechanisms or governance we can put in
place to ensure that their behaviors are
in line with what we want. Let's go a
little bit deeper into having a better
example of understanding game theory.
As promised, I'm going to use Airbus
versus Boeing because it's a quite a
good and easy simple example. Airbus
vs Boeing. This is quite a fun
thing. In economics, we have
different kind of markets. You have
monopoly. The famous example
will be diamonds, De Beers, where
they're just the monopoly player in the
market (single seller). With the airplane industry, it is
slightly different.
It's a duopoly because you've got two
big players (sellers) in the
market, instead of a monopoly which is
one, duopoly is two.
Airbus versus Boeing and this is a very
interesting power struggle
between both of them when we understand
how they function, and how Airbus or
Boeing's behavior or actions will affect
the other companies' reaction
in return. This is a quick timeline of
understanding where is the power
struggle or what are the considerations
that is related to game theory. Then
we go deeper into understanding the game
theory perspective of things.
Airbus came into play
in about '92. Before, that it was
Boeing being the monopoly in the market.
Before that, they had more than 50% of
market share so they were the
leader in the aircraft industry. And in 1993
they decided to create this
thing very large commercial transport.
Then (the largest plane) was the jumbo jets
which is about 500-1000 seaters that was in
place, that's your B777. Boeing
was the leader in that and Boeing had
most of the market share because they
had the big planes and other companies
like Singapore Airlines and 
British Airways wanted bigger planes.
The biggest plane was Boeing 777
and they were selling
like hotcakes. In 1995, they
decided to create this
this big plane which
is Superjumbo Jet from
a thousand capacity. That's a lot bigger, about twice the usual size and
they wanted to collaborate together to
to create this. Firstly, why do they
want to collaborate? Because to create
this, you need a lot of money in R&D, a
lot of testings, a lot of trials, and it's
only one party going in (Airbus or
Boeing), it's gonna be very costly. So we
see that a little bit later. And you want
to share the burden and also share the
success.
Now, the outcome in '95, so in '93,
Airbus and Boeing decide to come
together and say "okay let's be friends.
Let's create this you know very large plane because there
were demands for it."
I know Singapore Airlines is one of them,
they wanted bigger planes. So they needed
to come together to make bigger planes,
to satisfy the demand. But in 1995, Boeing
kept delaying so Airbus is ready, they
had the funds they needed to put in, and
they had research done. They were
ready to collaborate, and start
executing the plan and start testing and
trying and stuff that. But Boeing kept
delaying. Boeing said "no, later" or "you know
let's check this out and check that out"
and they kept delaying. So Airbus came
up with "okay you don't want to do that
together then I'm going to create my AXXX."
It's basically a big plane
to compete with Boeing 777.
That was good you know.
All the investors
were supporting them. Then
Boeing came and threatened them and said
"well that's gonna be very costly for you. For me, if I can
increase the size of the Boeing
777. I just need to extend a few
parts of the plane. It's gonna be much
cheaper and your project is just stupid."
So because of that kind of statements,
which was quite false, a lot of investors
of the Airbus AXXX decide to pull out. And
now, they both are like "oh they're not
going to move forward with that". In 1998,
Airbus really wanted to do this
because Airbus needed to
gain more market shares and Airbus wanted
to enter the space of bigger planes. 
In '98, they decided to just go
ahead with superjumbo jets.
It's all over the newspapers and
headlines saying that it is going to be produced. Then, because they need a lot of
money, Airbus also a fully integrated
with all the different countries, where
it was supported by the government to
give them subsidies to do R&D, to
research, and to execute. That was
quite successful and in 2003, also
because they're backed by so many of the
big economies, Boeing lost their market
leadership. In 2005, the Airbus a380
was created. If you don't know Airbus 380,
it's a very big plane. You have two
levels and you can fit a lot of people
in there. That's where you know the
real superjumbo jet existed and it
threatened Boeing's 777. Boeing 777
lost the market leadership.
They needed to create a bigger
plane to compete with a380.
So the Boeing 787 was created then.
After that in 2016 they're both caught
to be flouting the global trade rules
like in NAFTA for Boeing. They're also other subsidy rules
they're arguing about with
Airbus in EU.
The NAFTA deal in 2017, thanks to the president of
the US, was actually hurting Boeing and
so it really affected their
their market shares. And as you know
recently the Airbus 737 was also
affecting the markets of Boeing but
we're not going to focus on that. We're
going to focus very specifically on the
area of (1) "why did Boeing decide to delay"
and (2) "how did it come to this decision"
and (3) "how the Airbus and how did everyone
react" because we want understand how a
decision is made, right? We want to understand strategic decision-making so we're
gonna dive deeper into this to
understand.
