The Price of Airline Frequency Competition

Vikrant Vaze () and Cynthia Barnhart
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Vikrant Vaze: Dartmouth College
Cynthia Barnhart: Massachusetts Institute of Technology

A chapter in Game Theoretic Analysis of Congestion, Safety and Security, 2015, pp 173-217 from Springer

Abstract: Abstract Competition based on service frequency influences capacity decisions in airline markets and has important implications for airline profitability and airport congestion. The market share of a competing airline is a function of its frequency share. This relationship is pivotal for understanding the impacts of frequency competition on airport congestion and on the airline business in general. Additionally, airport congestion is closely related to several aspects of runway, taxiway, and airborne safety. Based on the most popular form of the relationship between market share and frequency share, we propose a game-theoretic model of frequency competition. We characterize the conditions for Nash equilibrium’s existence and uniqueness for the two-player case. We analyze myopic learning dynamics for the non-equilibrium situations and prove their convergence to Nash equilibrium under mild conditions. For the N-player symmetric game, we characterize all the pure strategy equilibria and identify the worst-case equilibrium, i.e., the equilibrium with maximum total cost. We provide a measure of the congestion level, based on the concept of price of anarchy and investigate its dependence on game parameters.

Keywords: Airline competition; Price of anarchy; Airport congestion; Airline probability; Degree of inefficiency; Best response (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:spr:ssrchp:978-3-319-13009-5_7

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DOI: 10.1007/978-3-319-13009-5_7

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