Game theory: Airasia –vs- MAS – vs- Firefly

Author: Iloka Benneth Chiemelie

Published: 23-September-2014

Game theory is not new in the business scene as it applies to everyday business. In generally, it is defined as the strategies used in dealing with the competitive situations in a given market in the case that the outcome of choices made by companies depends greatly on the actions of its competitors (Cornell, 2006; Laura, 2007; Hoffman, Turley and Kelley, 2002).

For instance, is company decides to charge higher prices (where price is used to showcase value), the outcome of such decision (whether or not consumers purchase at such price) is directly influenced by the actions of competitors (whether they charge same of different price). If the charge same price, outcome will be as expected but if competitors charge higher or lower price, outcome will vary in the sense that purchase will increase if competitors charge higher, or decrease if competitors charge lower.

Example:

MAS is the Malaysian carrier, which has been in existence for numerous years prior to the establishment of AirAsia and Firefly. The company has based its price on Luxurious branding (high price for high value), in which air travel was seen in Malaysia as a thing for the rich. However, the entrance of AirAsia, a low cost carrier with the brand image of “Now Everyone Can Fly,” changed the outcome of the game because AirAsia quickly repositioned the view on air travel by actually showing customers that it is affordable. The outcome of MAS was reduced (as they lost shares in the Malaysian market and other markets where they compete with AirAsia), while the outcome of AirAsia increased due to low cost fares. As a response, MAS established Firefly as a low cost carrier wing in order to battle the market with AirAsia. Thus, MAS is now capable of serving both the rich and normal market in which those seeking luxury will board MAS, while those seeking reduced faire will board Firefly. Thus, they are able to target both the market of AirAsia (low cost carrier) and retain its own market (Luxurious career).

References

Connell John F.O (2006). “Passengers‟ perceptions of low cost airline and full service carrier” A case study.

Laura (2007). Low cost strategies in the context of global market.

Hoffman KD Turley LW and Kelley Sw (2002). “Pricing retail services”. Journal of Business Research vol55 pp 1015-23”