OPEN-LOOP AND CLOSED-LOOP MODELS OF DYNAMIC OLIGOPOLY IN THE CRUISE LINE INDUSTRY

Byung-Wook Wie ()
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Byung-Wook Wie: School of Travel Industry Management, University of Hawaii, 2560 Campus Road, Honolulu, Hawaii 96822, USA

Asia-Pacific Journal of Operational Research (APJOR), 2004, vol. 21, issue 04, 517-541

Abstract: In this paper, the competition of dynamic oligopoly in the cruise line industry is modeled as anN-person nonzero-sum noncooperative dynamic game where a finite number of cruise lines compete to maximize their profits over a fixed planning horizon. The noncooperative Nash equilibrium capacity investment strategies of cruise lines are theoretically analyzed under the open-loop and closed-loop information structures. The optimality conditions for open-loop and closed-loop Nash equilibrium solutions are derived using a Pontryagin-type maximum principle and given economic interpretations so as to demonstrate the differences between the open-loop and closed-loop Nash equilibrium solutions. The dynamic oligopolistic competition of three cruise lines in a hypothetical setting is numerically analyzed by using the iterative algorithms for open-loop and closed-loop models. Numerical results provide a number of important managerial guidelines for cruise capacity investment decisions. The paper concludes with a discussion on future research directions.

Keywords: Dynamic oligopoly; cruise line industry; capacity investment; iterative algorithm; open-loop and closed-loop Nash equilibria (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (3)

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DOI: 10.1142/S0217595904000187

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