For each of the situations below, comment and briefly explain your reasoning in a few sentences. 5(a) In the market for production of large commercial aircraft, there are really only two players: Boeing and Airbus. For both of these companies, their customers are the airlines (e.g., Delta, British Air, Lufthansa) who negotiate and place orders for a large number of aircraft whenever they need to update or expand their fleet. For many years, Boeing and Airbus have been stuck in cycles of severe price wars, followed by "truces" where they pledge not to compete on price, followed by truces being broken and more price wars. Based on the frameworks from this class, why do you think it might be so difficult for these two companies to "collude" (explicitly or tacitly) and avoid price wars? 5(b) In the U.S. airline industry, studies have found two factors that predict when price wars are more likely to occur. (1) When GDP growth (and therefore demand for flights) is lower than what had been predicted. And (2) during the spring and summer, when more vacation travel usually takes place. Based on the frameworks from this class, why are we more likely to see price wars during these two times? (You can give different explanations for the two different factors.)

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