Game Theory of Ryan Air

| British Airways and Aer Lingus |

| Retaliation (P=98) | Accommodate (P=166.5) |

Ryan Air | Enter | 3.6 MM ; 45.2 MM | 6.1 MM; 72.8 MM |

| Not Enter | 0 MM ; 49 MM | 0 ; 83.2 MM |

1. Retaliation and Enter

Ryan Air :

* Will attract 62,250 * 60% = 37,350 passengers

* Total revenue = 37,350 * 98 = 3,660,300

BA & AL :

* Will attract 770,000 * 60% = 462,000 passengers

* Total revenue = 462,000 * 98 = 45,276,000

2. Accommodate and Enter

Ryan Air :

* Will attract 62,250 (with assumption that 100% seats are filled, because people would rather choose the cheapest one)

* Total revenue = 62,250 * 98 = 6,100,500

BA & AL

* Will attract (500,000 – 62,250 = 437,750 passengers)

* Total revenue = 437,750 * 166.5 = 72,885,375

3. Retaliation and Not Enter

Ryan Air : 0 MM

BA & AL : Will earn all the market with total revenue : 500,000 * 98 = 49,000,000

4. Accommodate and Not Enter

Ryan Air : 0 MM

BA & AL : Will earn all the market with total revenue : 500,000 * 166.5 = 83,250,000

So, in conclusion the optimal point for both companies will be the “Accommodate and Enter”.

Therefore we can also answer the question about the cost for AL and BA if they demonstrate retaliation behavior instead of accommodate, when Ryan Air enter the market. That is total revenue of Accommodate minus total revenue of Retaliation (72,885,375-45,276,000 = 27,609,375).