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Mathematical structure of a bilevel strategic pricing model

Author

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

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.

Suggested Citation

  • Marcotte, Patrice & Savard, Gilles & Zhu, Daoli, 2009. "Mathematical structure of a bilevel strategic pricing model," European Journal of Operational Research, Elsevier, vol. 193(2), pages 552-566, March.
  • Handle: RePEc:eee:ejores:v:193:y:2009:i:2:p:552-566
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    References listed on IDEAS

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    1. 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.
    2. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
    3. 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.
    4. Gabszewicz, Jean Jaskold & Thisse, Jacques-Francois, 1986. "On the Nature of Competition with Differentiated Products," Economic Journal, Royal Economic Society, vol. 96(381), pages 160-172, March.
    5. Leurent, Fabien, 1993. "Cost versus time equilibrium over a network," European Journal of Operational Research, Elsevier, vol. 71(2), pages 205-221, December.
    6. Phlips,Louis, 1983. "The Economics of Price Discrimination," Cambridge Books, Cambridge University Press, number 9780521283946, April.
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