Title: An airline revenue management pricing game with seat allocation

Authors: Asif Syed Raza, Ali Akgunduz

Addresses: Department of Mechanical and Industrial Engineering, Concordia University, 1455 de Maisonneuve Boulevard West, Montreal, Quebec H3G 1M8, Canada. ' Department of Mechanical and Industrial Engineering, Concordia University, 1455 de Maisonneuve Boulevard West, Montreal, Quebec H3G 1M8, Canada

Abstract: This paper studies a horizontal fare-pricing competition between two airlines having a single flight leg. Two distinct scenarios are considered. First, the two airlines price competition for the pre-committed booking limits is analysed. The problem is studied under deterministic price sensitive demands. The existence of unique pricing strategies at Nash equilibrium is shown. In the second scenario, a joint seat allocation and fare-pricing competition model for stochastic demand is proposed. A numerical analysis is presented to demonstrate the impacts of various market conditions on the payoffs, booking limits and pricing strategies of the competing airlines.

Keywords: airline revenue management; game theory; Nash equilibrium; seat inventory control; fare pricing competition; price sensitive demands; pricing strategies; booking limits.

DOI: 10.1504/IJRM.2008.018177

International Journal of Revenue Management, 2008 Vol.2 No.1, pp.42 - 62

Published online: 06 May 2008 *

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