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Regulating the domestic air travel in India: an umpire's game

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  • Bhaumik, P. K.

Abstract

This paper analyses the competitive strategies available to an Indian airline in a scenario where the entry of private domestic airlines has only recently been allowed. The Calcutta-Delhi route is initially analysed as an example--where there are three major players competing. The fare charged by each airline being the same, the number of departures is used as one of the major competitive weapons. Game theory is used here as a useful tool to analyse such situations. The equilibrium behaviour of the airlines is studied and the possibility of the game being played at the focal point is then analysed. All over the world, airlines have had a long history of economic regulation of both their national and international operations with governments often regarding regulation as necessary--both to achieve a comprehensive route network and to achieve stable markets. The game formulated is then analysed from the point of view of the regulating body and it is found that the game-theoretic framework is able to provide powerful insights regarding regulatory interventions. Two types of interventions, viz. fare regulation as well as the introduction of a licence fee per flight, are analysed and their ability to shift the Nash equilibrium to the focal point are studied. Finally, the problem is generalised and some results are obtained which are applicable to any route with any number of operators as long as the basic nature of the competitive situation remains the same. Use of the game-theoretic approach as a powerful tool to decide regulatory interventions is thus highlighted.

Suggested Citation

  • Bhaumik, P. K., 2002. "Regulating the domestic air travel in India: an umpire's game," Omega, Elsevier, vol. 30(1), pages 33-44, February.
  • Handle: RePEc:eee:jomega:v:30:y:2002:i:1:p:33-44
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    References listed on IDEAS

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    4. James A. Brander & Anming Zhang, 1990. "Market Conduct in the Airline Industry: An Empirical Investigation," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 567-583, Winter.
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    1. Alderighi, Marco & Cento, Alessandro & Nijkamp, Peter & Rietveld, Piet, 2005. "Network competition—the coexistence of hub-and-spoke and point-to-point systems," Journal of Air Transport Management, Elsevier, vol. 11(5), pages 328-334.
    2. Mendonça, Francisco V. & Catalão-Lopes, Margarida & Marinho, Rui Tato & Figueira, José Rui, 2020. "Improving medical decision-making with a management science game theory approach to liver transplantation," Omega, Elsevier, vol. 94(C).
    3. Marco Alderighi & Alessandro Cento & Peter Nijkamp & Piet Rietveld, 2005. "Network competition - the co-existence of hub-and-spoke and point-to-point," ERSA conference papers ersa05p703, European Regional Science Association.
    4. Adler, Nicole & Pels, Eric & Nash, Chris, 2010. "High-speed rail and air transport competition: Game engineering as tool for cost-benefit analysis," Transportation Research Part B: Methodological, Elsevier, vol. 44(7), pages 812-833, August.
    5. Adler, Nicole & Smilowitz, Karen, 2007. "Hub-and-spoke network alliances and mergers: Price-location competition in the airline industry," Transportation Research Part B: Methodological, Elsevier, vol. 41(4), pages 394-409, May.

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