IDEAS home Printed from https://ideas.repec.org/a/spr/ijsaem/v14y2023i3d10.1007_s13198-023-01924-1.html
   My bibliography  Save this article

Game analysis and pricing strategy of duopoly airlines based on service

Author

Listed:
  • Li Cheng

    (Shanghai University of Engineering Science)

  • Liu Conglin

    (Shanghai University of Engineering Science)

Abstract

Based on the basic assumptions of Hotelling model, this paper studied the game of duopoly airlines with service difference. Through the division of different service situations, the static game model of duopoly airlines was established, the relationship between airfare and position, revenue and position, service quality level and unit loss cost were studied, and the mutual influence law between two airlines was obtained. At the same time, based on the duopoly static game model, a dynamic airfare game system was constructed, and the equilibrium solution and stability of the system were discussed through the knowledge of nonlinear dynamics. The influence of dynamic adjustment speed and variation of service cost coefficient on equilibrium airfare were obtained, and the branch chaos under different service conditions was studied. Finally, chaos control was adopted to intervene the unstable state of the system, which could effectively make the system return to stability. The results showed that the maximum or minimum differentiation position strategy adopted by airlines in static game depended on the parameter range. In addition, when the service cost coefficient increased, the service quality level would decline, so the value of service cost coefficient should be controlled reasonably. In dynamic game, the difference of initial airfares did not affect the final equilibrium airfares. On the premise of providing services, small service cost coefficient might easily led to chaos of the system. A small fluctuation of any parameter might change the stable state of the system. Therefore, under the premise of the rapid development of today’s service industry, airlines should build brand characteristics and fully consider the influence of competition and service quality factors when pricing. Secondly, the stable area of control system was very important to maintain market order.

Suggested Citation

  • Li Cheng & Liu Conglin, 2023. "Game analysis and pricing strategy of duopoly airlines based on service," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 14(3), pages 1103-1124, June.
    • Handle: RePEc:spr:ijsaem:v:14:y:2023:i:3:d:10.1007_s13198-023-01924-1
    DOI: 10.1007/s13198-023-01924-1
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s13198-023-01924-1
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s13198-023-01924-1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Escobar-Rodríguez, Tomás & Carvajal-Trujillo, Elena, 2013. "Online drivers of consumer purchase of website airline tickets," Journal of Air Transport Management, Elsevier, vol. 32(C), pages 58-64.
    2. de Palma, André & Ordás Criado, Carlos & Randrianarisoa, Laingo M., 2018. "When Hotelling meets Vickrey. Service timing and spatial asymmetry in the airline industry," Journal of Urban Economics, Elsevier, vol. 105(C), pages 88-106.
    3. Jou, Rong-Chang & Lam, Soi-Hoi & Hensher, David A. & Chen, Chih-Cheng & Kuo, Chung-Wei, 2008. "The effect of service quality and price on international airline competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 44(4), pages 580-592, July.
    4. Hang Zhou & Shikang Zhou, 2019. "Pricing strategy of multi-oligopoly airlines based on service quality," PLOS ONE, Public Library of Science, vol. 14(6), pages 1-14, June.
    5. Borenstein, Severin & Netz, Janet, 1999. "Why do all the flights leave at 8 am?: Competition and departure-time differentiation in airline markets," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 611-640, July.
    6. Osborne, Martin J & Pitchik, Carolyn, 1987. "Equilibrium in Hotelling's Model of Spatial Competition," Econometrica, Econometric Society, vol. 55(4), pages 911-922, July.
    7. Yao Cui & A. Yeşim Orhun & Izak Duenyas, 2019. "How Price Dispersion Changes When Upgrades Are Introduced: Theory and Empirical Evidence from the Airline Industry," Management Science, INFORMS, vol. 65(8), pages 3835-3852, August.
    8. Stefano Colombo, 2011. "Spatial price discrimination in the unidirectional Hotelling model with elastic demand," Journal of Economics, Springer, vol. 102(2), pages 157-169, March.
    9. Yi Tian & Junhai Ma & Wandong Lou, 2018. "Research on Supply Chain Stability Driven by Consumer’s Channel Preference Based on Complexity Theory," Complexity, Hindawi, vol. 2018, pages 1-13, August.
    10. Hans Peters & Marc Schröder & Dries Vermeulen, 2018. "Hotelling’s location model with negative network externalities," International Journal of Game Theory, Springer;Game Theory Society, vol. 47(3), pages 811-837, September.
    11. Qian Liu & Dan Zhang, 2013. "Dynamic Pricing Competition with Strategic Customers Under Vertical Product Differentiation," Management Science, INFORMS, vol. 59(1), pages 84-101, August.
    12. Stamolampros, Panagiotis & Korfiatis, Nikolaos, 2019. "Airline service quality and economic factors: An ARDL approach on US airlines," Journal of Air Transport Management, Elsevier, vol. 77(C), pages 24-31.
    13. Tong Zhang & Yixue Huo & Xin Zhang & Jie Shuai, 2019. "Endogenous third-degree price discrimination in Hotelling model with elastic demand," Journal of Economics, Springer, vol. 127(2), pages 125-145, July.
    14. P. Senthil Kumar, 2020. "Algorithms for solving the optimization problems using fuzzy and intuitionistic fuzzy set," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 11(1), pages 189-222, February.
    15. Alderighi, Marco & Nicolini, Marcella & Piga, Claudio A., 2019. "Is low-cost carriers’ revenue management a firm capability?," Journal of Air Transport Management, Elsevier, vol. 78(C), pages 15-22.
    16. Zhang, Ming & Wang, Guanghui & Xu, Jin & Qu, Cunquan, 2020. "Dynamic contest model with bounded rationality," Applied Mathematics and Computation, Elsevier, vol. 370(C).
    17. Narangajavana, Yeamduan & Garrigos-Simon, Fernando J. & García, Javier Sanchez & Forgas-Coll, Santiago, 2014. "Prices, prices and prices: A study in the airline sector," Tourism Management, Elsevier, vol. 41(C), pages 28-42.
    18. Severin Borenstein, 1989. "Hubs and High Fares: Dominance and Market Power in the U.S. Airline Industry," RAND Journal of Economics, The RAND Corporation, vol. 20(3), pages 344-365, Autumn.
    19. Peng, Yu & Lu, Qian & Wu, Xue & Zhao, Yueru & Xiao, Yue, 2020. "Dynamics of Hotelling triopoly model with bounded rationality," Applied Mathematics and Computation, Elsevier, vol. 373(C).
    20. Junhai Ma & Fang Zhang & Yanyan He, 2014. "Complexity Analysis of a Master-Slave Oligopoly Model and Chaos Control," Abstract and Applied Analysis, Hindawi, vol. 2014, pages 1-13, August.
    21. Seyed Jafar Sadjadi & Hashem Asadi & Ramin Sadeghian & Hadi Sahebi, 2018. "Retailer Stackelberg game in a supply chain with pricing and service decisions and simple price discount contract," PLOS ONE, Public Library of Science, vol. 13(4), pages 1-24, April.
    22. Chen, Lu & Li, Yong-Quan & Liu, Chih-Hsing, 2019. "How airline service quality determines the quantity of repurchase intention - Mediate and moderate effects of brand quality and perceived value," Journal of Air Transport Management, Elsevier, vol. 75(C), pages 185-197.
    23. Marco Alderighi & Marcella Nicolini & Claudio A. Piga, 2015. "Combined Effects of Capacity and Time on Fares: Insights from the Yield Management of a Low-Cost Airline," The Review of Economics and Statistics, MIT Press, vol. 97(4), pages 900-915, October.
    24. Shaban, I.A. & Wang, Z.X. & Chan, F.T.S. & Chung, S.H. & Eltoukhy, A.E.E. & Qu, T., 2019. "Price setting for extra-baggage service for a combination carrier using the newsvendor setup," Journal of Air Transport Management, Elsevier, vol. 78(C), pages 1-14.
    25. A. A. Elsadany & A. M. Awad, 2016. "Dynamical analysis and chaos control in a heterogeneous Kopel duopoly game," Indian Journal of Pure and Applied Mathematics, Springer, vol. 47(4), pages 617-639, December.
    26. Borenstein, Severin & Rose, Nancy L, 1994. "Competition and Price Dispersion in the U.S. Airline Industry," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 653-683, August.
    27. Ma, Wenliang & Wang, Qiang & Yang, Hangjun & Zhang, Yahua, 2019. "An analysis of price competition and price wars in Australia's domestic airline market," Transport Policy, Elsevier, vol. 81(C), pages 163-172.
    28. P. Senthil Kumar, 2019. "Intuitionistic fuzzy solid assignment problems: a software-based approach," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 10(4), pages 661-675, August.
    29. P. Senthil Kumar & R. Jahir Hussain, 2016. "Computationally simple approach for solving fully intuitionistic fuzzy real life transportation problems," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 7(1), pages 90-101, December.
    30. Wu, Cheng-Han & Lai, Jing-Yi, 2019. "Dynamic pricing and competitive time-to-market strategy of new product launch under a multistage duopoly," European Journal of Operational Research, Elsevier, vol. 277(1), pages 138-152.
    31. Economides, Nicholas, 1986. "Minimal and maximal product differentiation in Hotelling's duopoly," Economics Letters, Elsevier, vol. 21(1), pages 67-71.
    32. S. A. Chernogorskiy & A. V. Kozlov & A. B. Teslya, 2020. "Game-theoretic modeling of decision-making on state support for the infrastructure development in the Russian Far North," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 11(1), pages 10-18, May.
    33. Tramontana, Fabio, 2010. "Heterogeneous duopoly with isoelastic demand function," Economic Modelling, Elsevier, vol. 27(1), pages 350-357, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Morlotti, Chiara & Redondi, Renato, 2023. "The impact of COVID-19 on airlines’ price curves," Journal of Air Transport Management, Elsevier, vol. 107(C).
    2. Chi‐Hyon Lee & Manuela N. Hoehn‐Weiss & Samina Karim, 2021. "Competing both ways: How combining Porter's low‐cost and focus strategies hurts firm performance," Strategic Management Journal, Wiley Blackwell, vol. 42(12), pages 2218-2244, December.
    3. Borenstein, Severin & Netz, Janet, 1999. "Why do all the flights leave at 8 am?: Competition and departure-time differentiation in airline markets," International Journal of Industrial Organization, Elsevier, vol. 17(5), pages 611-640, July.
    4. P. Senthil Kumar, 2019. "PSK Method for Solving Mixed and Type-4 Intuitionistic Fuzzy Solid Transportation Problems," International Journal of Operations Research and Information Systems (IJORIS), IGI Global, vol. 10(2), pages 20-53, April.
    5. Ciliberto, Federico & Schenone, Carola, 2012. "Bankruptcy and product-market competition: Evidence from the airline industry," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 564-577.
    6. Myongjin Kim & Qihong Liu & Nicholas G. Rupp, 2023. "When Do Firms Offer Higher Product Quality? Evidence from the Allocation of Inflight Amenities," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 62(2), pages 149-177, March.
    7. P. Senthil Kumar, 2020. "Developing a New Approach to Solve Solid Assignment Problems Under Intuitionistic Fuzzy Environment," International Journal of Fuzzy System Applications (IJFSA), IGI Global, vol. 9(1), pages 1-34, January.
    8. Abdelmalek Ouannou & Adil Brouri & Laila Kadi & Hafid Oubouaddi, 2022. "Identification of switched reluctance machine using fuzzy model," International Journal of System Assurance Engineering and Management, Springer;The Society for Reliability, Engineering Quality and Operations Management (SREQOM),India, and Division of Operation and Maintenance, Lulea University of Technology, Sweden, vol. 13(6), pages 2833-2846, December.
    9. Alderighi, Marco & Gaggero, Alberto A. & Piga, Claudio A., 2022. "Hidden prices with fixed inventory: Evidence from the airline industry," Transportation Research Part B: Methodological, Elsevier, vol. 157(C), pages 42-61.
    10. Saeedeh Bazari & Alireza Pooya & Omid Soleimani Fard & Pardis Roozkhosh, 2023. "Modeling and solving the problem of scheduling university exams in terms of new constraints on the conflicts of professors' exams and the concurrence of exams with common questions," OPSEARCH, Springer;Operational Research Society of India, vol. 60(2), pages 877-915, June.
    11. Christopher Mayer & Todd Sinai, 2003. "Network Effects, Congestion Externalities, and Air Traffic Delays: Or Why Not All Delays Are Evil," American Economic Review, American Economic Association, vol. 93(4), pages 1194-1215, September.
    12. Chengyan Gu, 2023. "Market segmentation and dynamic price discrimination in the U.S. airline industry," Journal of Revenue and Pricing Management, Palgrave Macmillan, vol. 22(5), pages 338-361, October.
    13. Sun, Xiaoqian & Wandelt, Sebastian & Zhang, Anming, 2023. "Price discrimination through hidden city options? A data-driven study on the extent and evolution of skiplaggability in the global aviation system," Journal of Air Transport Management, Elsevier, vol. 108(C).
    14. Soyk, Christian & Ringbeck, Jürgen & Spinler, Stefan, 2021. "Effect of long-haul low-cost carriers on North Atlantic air fares," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 152(C).
    15. Yannis Kerkemezos & Bas Karreman, 2020. "On the Benefits of Being Alone: Scheduling Changes, Intensity of Competition and Dynamic Airline Pricing," Tinbergen Institute Discussion Papers 20-042/VII, Tinbergen Institute.
    16. Christopher Mayer & Todd Sinai, "undated". "Network Effects, Congestion Externalities, and Air Traffic Delays: Or Why All Delays Are Not Evil," Zell/Lurie Center Working Papers 393, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
    17. Morlotti, Chiara & Cattaneo, Mattia & Malighetti, Paolo & Redondi, Renato, 2017. "Multi-dimensional price elasticity for leisure and business destinations in the low-cost air transport market: Evidence from easyJet," Tourism Management, Elsevier, vol. 61(C), pages 23-34.
    18. van den Bogaard, Julien E. & Lijesen, Mark G., 2019. "Pricing of imperfect substitutes: The next flight is not the same flight," Research in Transportation Economics, Elsevier, vol. 78(C).
    19. Zhi-Ming Chen & Cheng-Hsiung Lee & Hung-Lin Lai, 2022. "Speedup the optimization of maximal closure of a node-weighted directed acyclic graph," OPSEARCH, Springer;Operational Research Society of India, vol. 59(4), pages 1413-1437, December.
    20. Król, Michał, 2012. "Product differentiation decisions under ambiguous consumer demand and pessimistic expectations," International Journal of Industrial Organization, Elsevier, vol. 30(6), pages 593-604.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:ijsaem:v:14:y:2023:i:3:d:10.1007_s13198-023-01924-1. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.