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Mathematical structure of a bilevel strategic pricing model

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  • Marcotte, Patrice
  • Savard, Gilles
  • Zhu, Daoli
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    Abstract

    This paper is concerned with the characterization of optimal strategies for a service firm acting in an oligopolistic environment. The decision problem is formulated as a leader-follower game played on a transportation network, where the leader firm selects a revenue-maximizing price schedule that takes explicitly into account the rational behavior of the customers. In the context of our analysis, the follower's problem is associated with a competitive network market involving non atomic customer groups. The resulting bilevel model can therefore be viewed as a model of product differentiation subject to structural network constraints.

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    File URL: http://www.sciencedirect.com/science/article/B6VCT-4R5VYT6-3/2/39804de7a3bd9550bb2f7522c7838101
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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 193 (2009)
    Issue (Month): 2 (March)
    Pages: 552-566

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    Handle: RePEc:eee:ejores:v:193:y:2009:i:2:p:552-566

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: Pricing Productivity and competitiveness Revenue management Economics Game theory;

    References

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    1. Phlips,Louis, 1983. "The Economics of Price Discrimination," Cambridge Books, Cambridge University Press, number 9780521283946, October.
    2. Philips, Louis & Thisse, Jacques-Francois, 1982. "Spatial Competition and the Theory of Differentiated Markets: An Introduction," Journal of Industrial Economics, Wiley Blackwell, vol. 31(1-2), pages 1-9, September.
    3. Gabszewicz, Jean Jaskold & Thisse, Jacques-Francois, 1986. "On the Nature of Competition with Differentiated Products," Economic Journal, Royal Economic Society, vol. 96(381), pages 160-72, March.
    4. Leurent, Fabien, 1993. "Cost versus time equilibrium over a network," European Journal of Operational Research, Elsevier, vol. 71(2), pages 205-221, December.
    5. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "Price competition, quality and income disparities," CORE Discussion Papers RP -370, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Martine Labbé & Patrice Marcotte & Gilles Savard, 1998. "A Bilevel Model of Taxation and Its Application to Optimal Highway Pricing," Management Science, INFORMS, vol. 44(12-Part-1), pages 1608-1622, December.
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