Game analysis and pricing strategy of duopoly airlines based on service

Li Cheng () and Liu Conglin ()
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Li Cheng: Shanghai University of Engineering Science
Liu Conglin: Shanghai University of Engineering Science

International Journal of System Assurance Engineering and Management, 2023, vol. 14, issue 3, No 21, 1103-1124

Abstract: Abstract Based on the basic assumptions of Hotelling model, this paper studied the game of duopoly airlines with service difference. Through the division of different service situations, the static game model of duopoly airlines was established, the relationship between airfare and position, revenue and position, service quality level and unit loss cost were studied, and the mutual influence law between two airlines was obtained. At the same time, based on the duopoly static game model, a dynamic airfare game system was constructed, and the equilibrium solution and stability of the system were discussed through the knowledge of nonlinear dynamics. The influence of dynamic adjustment speed and variation of service cost coefficient on equilibrium airfare were obtained, and the branch chaos under different service conditions was studied. Finally, chaos control was adopted to intervene the unstable state of the system, which could effectively make the system return to stability. The results showed that the maximum or minimum differentiation position strategy adopted by airlines in static game depended on the parameter range. In addition, when the service cost coefficient increased, the service quality level would decline, so the value of service cost coefficient should be controlled reasonably. In dynamic game, the difference of initial airfares did not affect the final equilibrium airfares. On the premise of providing services, small service cost coefficient might easily led to chaos of the system. A small fluctuation of any parameter might change the stable state of the system. Therefore, under the premise of the rapid development of today’s service industry, airlines should build brand characteristics and fully consider the influence of competition and service quality factors when pricing. Secondly, the stable area of control system was very important to maintain market order.

Keywords: Service differentiation; Pricing strategy; Hotelling model; Duopoly airlines; Game theory (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s13198-023-01924-1

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