Boeing and Airbus are competing to fill an order of jets for Singapore Airlines. Each firm can offer a price of $10 million per jet or $5 million per jet. If both firms offer the same price, the airline will split the order between the two firms, 50-50. If one firm offers a higher price than the other, the lower-price competitor wins the entire order. Here is the profit that Boeing and Airbus expect they could earn from this transaction:

a) What is the Nash equilibrium in this game?
b) Suppose that Boeing and Airbus anticipate that they will be competing for orders like the one from Singapore Airlines every quarter, from now to the foreseeable future. Each quarter, each firm offers a price, and the payoffs are determined according to the table above. The prices offered by each airline are public information. Suppose that Airbus has made the following public statement:
To shore up profit margins, in the upcoming quarter we intend to be statesmanlike in the pricing of our aircraft and will not cut price simply to win an order. However, if the competition takes advantage of our statesmanlike policy, we intend to abandon this policy and will compete all out for orders in every subsequent quarter.
Boeing is considering its pricing strategy for the upcoming quarter. What price would you recommend that Boeing charge? Important note: To evaluate payoffs, imagine that each quarter, Boeing and Airbus receive their payoff right away. (Thus, if in the upcoming quarter, Boeing chooses $5 million and Airbus chooses $10 million, Boeing will immediately receive its profit of $270 million.) Furthermore, assume that Boeing and Airbus evaluate future payoffs in the following way: a stream of payoffs of $1 starting next quarter and received in every quarter thereafter has exactly the same value as a one-time payoff of $40 received immediately this quarter.
c) Suppose that aircraft orders are received once a year rather than once a quarter. That is, Boeing and Airbus will compete with each other for an order this year (with payoffs given in the table above), but their next competitive encounter will not occur for another year. In terms of evaluating present and future payoffs, suppose that each firm views a stream of payoffs of $1 starting next year and received every year thereafter as equivalent to$10 received immediately this year. Again assuming that Airbus will follow the policy in its public statement above, what price would you recommend that Boeing charge in this year and beyond?

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Boeing P- SSm0,30270,0 P $10m 0,270 50, 50 Airbus (payoffs are in millions of dollars)