Airbus and Boeing will develop a new commercial jet aircraft. Airbus is ahead, and Boeing is considering whether to enter the market. If Boeing stays out, it earns zero profit, while Airbus enjoys a monopoly and earns a profit of $1 billion. If Boeing enters, then Airbus has to decide whether to accommodate Boeing peacefully, or to wage a price war. With peace, each firm will make a profit of $300 million. With a price war, each will lose $100 million.
Does it matter which order the “players” are put on the extensive form game tree? Why or why not? ?
Draw the extensive form game tree for this strategic situation. Clearly label the nodes, the branches, the payoffs, and the terminal node.