An Analysis of the Operation Model and Pricing Strategy of Airline Industries

Application of Game Theory in Airline Network Industries

An analysis of the operation model and pricing strategy of airline industries

Ying Qiao, Wenjia Wang, Shengyang Xu

2011/9/5

Catalog

Abstract 1

Keywords 1

Presumption 2

Model of the game 2

1. Introduction 2

2. Static game 2

3. Dynamic game with perfect information 4

Solution 7

1. Static game 7

2. Dynamic game 8

Conjecture 9

Reference 9

Abstract

We apply game theory into a specific game in airline market in order to review the games we discussed in this session. In order to be more practical, we also apply some knowledge in economics of network industries in the model. Finally, we get some simple conclusions and some conjectures which need us to prove in future classes.

Keywords

game theory; network industries; fully connected net; hub-and-spoke net;

static game; dynamic game; Nash equilibrium; subgame perfect equilibrium.

A review on game theory by a game in airline market

Group members: Ying Qiao, Wenjia Wang, Shengyang Xu

Presumption

There are only two companies in the airline market

The cost of an airline includes a constant part and a variable part

we have the cost of a firm as below:

C(q)=α+β(q)=30000+5q

The quantity of a firm is a function depending on both companies' prices

the quantity of a firm's demand can be expressed as below:

q_1=1000-5p_1+3p_2

and,

q_2=1000-5p_2+3p_1

The consumers in airline market have an expected value on time, which is δ.

Model of the game

Introduction

There