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Revenue Sharing in Airline Alliance Networks

Author

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  • Yuntong Wang

    () (Department of Economics, University of Windsor)

Abstract

This paper takes an axiomatic approach to the revenue sharing problem for an airline alliance network. We propose a simple sharing rule that allocates the revenue of each ?ight equally among the carriers of the ?ight. We show that it is the only rule satisfying the axioms of Separability, the Null Airline Property, and Equal Treatment of Equals. We show that the rule coincides with the Shapley value of the game associated with the problem. We provide two extensions of the rule, allowing it to depend on the lengths or the capacities of the ?ight legs. We also consider the maximum revenue problem for the airline alliance. We propose a simple Integer Linear Programming model. We examine its Owen set. Lastly, we provide an algorithm to compute both the optimal solution and the revenue sharing solution given by the simple sharing rule for the maximum revenue problem.

Suggested Citation

  • Yuntong Wang, 2016. "Revenue Sharing in Airline Alliance Networks," Working Papers 1605, University of Windsor, Department of Economics.
  • Handle: RePEc:wis:wpaper:1605
    as

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    File URL: http://web2.uwindsor.ca/economics/RePEc/wis/pdf/1605.pdf
    File Function: First version, 2016
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    References listed on IDEAS

    as
    1. Kimms, Alf & Çetiner, Demet, 2012. "Approximate nucleolus-based revenue sharing in airline alliances," European Journal of Operational Research, Elsevier, vol. 220(2), pages 510-521.
    2. Bergantinos, Gustavo & Vidal-Puga, Juan J., 2007. "A fair rule in minimum cost spanning tree problems," Journal of Economic Theory, Elsevier, vol. 137(1), pages 326-352, November.
    3. Moulin, Herve, 2002. "Axiomatic cost and surplus sharing," Handbook of Social Choice and Welfare,in: K. J. Arrow & A. K. Sen & K. Suzumura (ed.), Handbook of Social Choice and Welfare, edition 1, volume 1, chapter 6, pages 289-357 Elsevier.
    4. Ginsburgh, Victor & Zang, Israel, 2003. "The museum pass game and its value," Games and Economic Behavior, Elsevier, vol. 43(2), pages 322-325, May.
    5. Serguei Netessine & Robert A. Shumsky, 2005. "Revenue Management Games: Horizontal and Vertical Competition," Management Science, INFORMS, vol. 51(5), pages 813-831, May.
    6. de Boer, Sanne V. & Freling, Richard & Piersma, Nanda, 2002. "Mathematical programming for network revenue management revisited," European Journal of Operational Research, Elsevier, vol. 137(1), pages 72-92, February.
    7. S. C. Littlechild & G. Owen, 1973. "A Simple Expression for the Shapley Value in a Special Case," Management Science, INFORMS, vol. 20(3), pages 370-372, November.
    8. Moulin, Herve & Laigret, Francois, 2011. "Equal-need sharing of a network under connectivity constraints," Games and Economic Behavior, Elsevier, vol. 72(1), pages 314-320, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Revenue sharing; Airline alliance; Network.;

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General

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