Question 1: If the game was played just once the scenario for suppliers would be very similar to the prisoner’s dilemma case we discussed in game theory. Here both buyer and suppliers have dominant strategy. It would have been beneficial for both of suppliers if they could coordinate but as in this case they can’t, safest way is to bid at lowest cost. From buyer’s perspective, he will make maximum profit if he goes with lowest bid so that even in case of crisis, if supplier decides not to fix, buyer would have enough scope to cover the fixing cost. So, there is very less probability that Buyer will award contract to higher bid and any of supplier will bear the fixing cost. Decision tree & Payoff matrix: supplier A Supplier B $11 $14 $11 Allocations 50 100

Allocations 50 0 0 50 $14 100 50 Buyer Crisis Fixed A Yes $11 Yes No
Buyer No Yes $14 Yes NO B No

In the above case buyer would choose supplier A because of the lowest bid offered. In no crisis situation buyer will have gain of $1900 and supplier profit will be $100 and in crisis situation if buyer fixes, buyer’s profit will be $400 and supplier profit will remain same at $100. This case is not the optimal solution as buyers profit is very large and supplier’s is very less but this is the safest bet supplier has due to prisoner’s dilemma scenario. In case when both suppliers bid at same price, which is ideal case of suppliers, allocation will be 50 to each of them.

Question 2:
If the game is played multiple times, the scenario would look similar to sequential games. Here buyer and seller can take decision on the basis of prior bids. Even though the game is played multiple times, if the buyer sticks to lowest bid there will not be much difference in output and since the bids are low, fixing cost will be bared by Buyer only. In repeated games, there could be a situation where buyers and suppliers can have agreement where supplier will take responsibility of crisis and the bids will be optimal .This can increase the efficiency of the process. Also, since there are two suppliers competing there will not be monopoly and the cost effectiveness might be achieved.
Question 3:
Government’s decision to start sourcing from the second supplier was beneficial due to following reasons:
1. Removed monopoly of single supplier, increased competition and hence more cost efficient process.
2. Since the concerns about the unreliability of F100 engine in combat situations with the previous suppliers was increasing, it was necessary to have alternative in place.
3. Since Pratt and Whitney’s were the sole suppliers, there was no competition and hence fixed customers. Due to lack of competition their response to the F100 jet engine’s persistent problems of reliability and operability in past was a concern.
4. The U.S. Air Force believed that Pratt had been largely unresponsive and legalistic in prior discussions of these problems.
5. Initially Pratt and Whitney Aircraft also demonstrated a greater understanding of engine/inlet compatibility phenomena but later they could not implement it.
6. The approach suggested by Pratt to skip the component-by-component tests and shifting to all-up testing caused a delay in the F100 development owing to problems in the development of the F-14. Thus Air Force was pushed to back deadlines for the late delivery of engine units and pay penalty to the airframe contractor.
7. The engine of F15 showed an unacceptably high rate of stall stagnations. Improved inspection techniques reduced the number of in-flight engine failures, but increased maintenance costs by precipitating engine overhauls to shorter-than-planned operation periods.
8. Contractual Dispute: In the eyes of the Air Force, Pratt seemed unresponsive to these problems and appeared to sacrifice fulfillment of its quality guarantees to short-term profit maximization. For instance, lawyers representing Pratt argued that Pratt had no contractual obligation to eliminate stall stagnations at its own expense as the F100 had been designed to Air Force specifications and had passed all demonstration milestones.