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A study into the duopolistic competitive dynamics of aircraft manufacturing industry from a game theory perspective. The report summarizes the different forms of interactions between Airbus and Boeing, and provides future recommendations for competitive strategy.
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Game Theory Perspective of Airbus
1. A Game Theory perspective
On duopolistic interactions from Airbus perspective
Shivom Aggarwal
Phd Student, IE Business School
2. mostly privately owned7
. It publishes its financial statements even though it is not obliged
to do so by the French law. Airbus falls under the umbrella of its parent company EADS
and its revenue derives from two sectors of operations. Commercial aircraft manufacturing
accounts for 78% of its sales and its military division accounts for the remaining 22%.
Sales by countries and regions break down as follows: France 10%, Germany 9%, United
Kingdom 8%, Europe 12%, North America 26%, Asia/Pacific 22%, Middle East 6%, Latin
America 3%, and others 4%.8
Among Airbus’ customers ILFC (International Lease Finance
Corporation) have to be mentioned since it is the largest and most important one. Regarding
the competitive advantage of Airbus, we identified three main points of differentiation. On
one hand, there is the employee diversification which is a key factor for Airbus’ success.
Airbus always valued the experience and expertise people from different backgrounds
brought to the industry. Secondly, there is the customer support. One of the company’s
greatest successes in these terms was the announcement to freeze the prices of spare parts.9
7
http://www.centreforaviation.com/images/stories/2011/september/09/boeing08.png
Lastly, Airbus has a big advantage over Boeing in standardizing its planes. Accordingly, it
is much easier for a Airbus pilot to switch between the different families than for a Boeing
pilot. As some of Airbus’ weaknesses delivery delays and reduction in suppliers have to be
mentioned. One of the worst problems Airbus faced was the delivery delay of the A380.
Due to this, the parent company EADS had to change its whole management in October
2006. In addition, Airbus also plans to reduce suppliers from 3000 to 500 which would
8
Euronext, 2006.
9
Airbus Annual Review, 2006
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3. companies it will saturate the market and make it almost impossible for new growing
competitors to gain a significant market share.
Working to maintain this duopoly may have some setbacks. First of all the rising
competitors will not react positively and may accuse the two companies of collusion, re-
open or build on past litigations. Secondly going back to a strong set duopoly would only
limit their possible growth to a maximum of 50% market share, but since the market would
be bigger, this would not affect the profits.
In addition to sending the right messages, to secure the duopoly Airbus must also push for
innovation in the right areas such as safety, sustainability and adaptability.
Recent historical events have made customers more skeptical about flying. A drop in
demand for air travel directly leads to a drop in demand for air crafts. To prevent this
Airbus should focus on developing safety control systems, for example against system
failures, terrorist attacks and epidemics such as SARS.
Moreover growing awareness about the depletion of the environment and a need to develop
environmentally friendly, sustainable technology is impacting consumer decisions in an
exponential manner. If Airbus is able to set itself at the forefront of this growing “clean
technology” it may create a sustainable competitive advantage. A first step to achieve this
would be to get the ISO 14001 certification for all of its manufacturing sites, in addition to
increase Research and Development in these areas. (also do R&D in these areas)
Thirdly, to properly capture new growing markets Airbus must be very adaptable. To do so
it can establish a Risk Management System that will hedge against exchange rate risks, and
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4. The Market Segmentation (Now)
Exhibit 2
600
500
400
300
200
100
000
Market Segments
1 2 3 4 5 6 7 8 9 10 11
AIRBUS BOEING
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5. The Sequential Game
Exhibit 5
Airbus
Boeing – $4 billion,
– $4 billion
$0.3 billion,
– $3 billion
out
in out
in
$0,
$0out
in
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6. Exhibit 8
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7. 202006%20conclusions.pdf
Hopkins, J. (2006, August 11). No Major Impact on Airlines is Expected.
BaltimoreSun.
Retrieved November 11, 2006 from http://www.baltimoresun.com/news/custom/
attack/bal-te.bz.industry11aug11,0,3405884.story?coll=bal-attack-headlines&?
track=sto-relcon
International Lease Finance Corporation (November 19, 2006). Wikipedia.
Retrieved
November 19, 2006 from
http://en.wikipedia.org/wiki/International_Lease_Finance_Corporation
Land, J. (2006, May 18). Airbus “Super Jumbo” Flies into Noise Protests.
Associated
Press. Retrieved November 15, 2006 from http://24dash.com
Killing Myths and Setting the Agenda. (2006). IATA. Retrieved November 12,
2006 from
http://www.environment.aero/00_summit2006_25Apr06_upgrade/modules/conten
tarea/crude_pages/files/iata%20press%20release%20aviation%20&%20environm
ent%20final.pdf
Minahan, Tim. (November 14, 2006). The Inside Scoop on Airbus’ Supplier
Strategy.
Supply Excellence. Retrieved November 19, 2006 from
http://supplyexcellence.com/blog/2006/11/14/the-inside-scoop-on-airbus supplier
strategy/
Philips, D. (2006, November 12). How 2001 Airbus Crash Led to Improved Safety.
International Herald Tribune. Retrieved November 15, 2006 from
http://www.iht.com/articles/2006/11/12/news/plane.php
32
Risk Factors - EADS Financial Statements and Corporate Governance; p7-14.
Retrieved November 18, 2006
http://www.eads.net/xml/content/OF00000000400004/2/73/41323732.pdf
Rothman, A. (2004, July 17). Airbus’ “Big Baby” is Too Big. Bloomberg News.
Retrieved November 15, 2006 from
http://seattlepi.nwsource.com/business/182471_airbusproblem17.html
Striving for the Highest Standards. (2006). Airbus. Retrieved November 15, 2006
from
http://www.airbus.com/en/corporate/ethics/quality/
Snyder, B. (2006, May 8). Newest Aircraft Trends “Take Off” in 2006. American
Society of Appraisers. Retrieved November 12, 2006 from
http://www.appraisers.org/pressroom/index.cfm?fa=view&id=379
Wilber, D. (2006, November 8) Airbus Bust, Boeing Boost. Washington Post
Company. Retrieved November 12, 2006 from
http://www.washingtonpost.com/wpdyn/
content/article/2006/11/07/AR2006110701506.html?nav=hcmodule
WTO Dispute Settlement. (November 15, 2006) European (EU) Commission.
Retrieved November 19, 2006 from
http://ec.europa.eu/trade/issues/respectrules/dispute/pr151106_en.htm
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