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Network capacity management under competition

Research output: Contribution to journalJournal article

Published
  • Houyuan Jiang
  • Zhan Pang
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<mark>Journal publication date</mark>10/2011
<mark>Journal</mark>Computational Optimization and Applications
Issue number2
Volume50
Number of pages40
Pages (from-to)287-326
Publication StatusPublished
<mark>Original language</mark>English

Abstract

We consider capacity management games between airlines who transport passengers over a joint airline network. Passengers are likely to purchase alternative tickets of the same class from competing airlines if they do not get tickets from their preferred airlines. We propose a Nash and a generalized Nash game model to address the competitive network revenue management problem. These two models are based on well-known deterministic linear programming and probabilistic nonlinear programming approximations for the non-competitive network capacity management problem. We prove the existence of a Nash equilibrium for both games and investigate the uniqueness of a Nash equilibrium for the Nash game. We provide some further uniqueness and comparative statics analysis when the network is reduced to a single-leg flight structure with two products. The comparative statics analysis reveals some useful insights on how Nash equilibrium booking limits change monotonically in the prices of products. Our numerical results indicate that airlines can generate higher and more stable revenues from a booking scheme that is based on the combination of the partitioned booking-limit policy and the generalized Nash game model. The results also show that this booking scheme is robust irrespective of which booking scheme the competitor takes.