akeroskid,
It's not true to say that "you need to have it on the market beforehand". Playing catch-up isn't such a poor position to be in.
Given that both of these products will probably be on the market for 20 years or so, for one of them to appear a year or two after the other won't make that much of a difference. Furthermore, if you allow your competitor to go first then it sets a benchmark for you to beat. Your offering is still design flexible once your competitors is fixed. You are in a position to assess your competitors strengths and weaknesses and tailor your product to suit. It's very difficult for the company moving first to then modify their product at a later date to counter the threat. This is effectively why Airbus did so well with the A332 - Boeing struggled to compete with the earlier 767. A similar, though longer term, situation exists with the A380 - Boeing set the benchmark with the 744 and Airbus simply had to go out and better it. For Boeing to respond with a version of the 747 just wouldn't be competitive and an all new aircraft would cost a fortune to develop.
In my opinion those extra couple of years Airbus have in hand will be the reason that their offering will ultimately be the winner. Of course the 7E7 will pick up quite a few sales in the interim but in the long run these will be insignificant. The A350 simply will not be released to the market unless it betters the 7E7 and coming from behind, Airbus will be in the perfect position to ensure that it does.