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Approximate nucleolus-based revenue sharing in airline alliances

Listed author(s):
  • Kimms, Alf
  • Çetiner, Demet
Registered author(s):

    Alliances allow the airlines to extend their networks and increase the number of destinations they can access. Different from the traditional single airline approach, in an alliance, partner airlines may sell tickets for the same itinerary. In addition, one itinerary may consist of several flight legs, each of which may be operated by a different airline. A major issue that needs to be addressed is how to share the revenue generated from selling a ticket for a product among the individual airlines in a fair way. The fair allocation of the revenue has a critical importance for the long-term stability of the alliance. We model the problem as a cooperative game and show that the core of the game is non-empty. We propose to use a revenue proration scheme based on the concept of the nucleolus. The numerical studies reveal that the revenue shares can effectively be computed even for large alliance networks.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0377221712000951
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    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 220 (2012)
    Issue (Month): 2 ()
    Pages: 510-521

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    Handle: RePEc:eee:ejores:v:220:y:2012:i:2:p:510-521
    DOI: 10.1016/j.ejor.2012.01.057
    Contact details of provider: Web page: http://www.elsevier.com/locate/eor

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    1. Hallefjord, Asa & Helming, Reidun & Jornsten, Kurt, 1995. "Computing the Nucleolus When the Characteristic Function Is Given Implicitly: A Constraint Generation Approach," International Journal of Game Theory, Springer;Game Theory Society, vol. 24(4), pages 357-372.
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    6. Graf, M. & Kimms, A., 2011. "An option-based revenue management procedure for strategic airline alliances," European Journal of Operational Research, Elsevier, vol. 215(2), pages 459-469, December.
    7. Wen-Chyuan Chiang & Jason C.H. Chen & Xiaojing Xu, 2007. "An overview of research on revenue management: current issues and future research," International Journal of Revenue Management, Inderscience Enterprises Ltd, vol. 1(1), pages 97-128.
    8. Martin Butler & H. Paul Williams, 2002. "Fairness versus efficiency in charging for the use of common facilities," LSE Research Online Documents on Economics 18399, London School of Economics and Political Science, LSE Library.
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