IDEAS home Printed from https://ideas.repec.org/a/inm/ortrsc/v27y1993i1p25-38.html
   My bibliography  Save this article

A Competitive Network Design Problem with Pricing

Author

Listed:
  • Phillip J. Lederer

    (University of Rochester, Rochester, New York 14627)

Abstract

This paper presents a simple model of competition between transport firms that captures the interaction of system design, price setting, and consumer choice. Transport competition is modeled as a noncooperative game where firms first select network designs, then prices for transportation between any two nodes. The goal is to find a Nash equilibrium in prices and system designs for all competing firms. Competition is studied under two alternate assumptions about consumer choice: customers can bundle separately purchased legs and customers cannot. If bundling cannot occur, it is shown that unique Nash equilibrium prices exist and that each firm's profit can be written as the difference between two minimum cost flow problems. Sufficient conditions for the existence of equilibrium network designs are also developed. If bundling can occur, it is shown that a price equilibrium may not exist, and if it does, the price equilibrium may not be unique. Lack of existence or uniqueness implies that firm profit is not a well defined function of network designs. This shows that the network design problem with bundling is difficult. With bundling, some results are possible in the case of duopoly competition: an equilibrium in prices always exists but equilibrium prices may not be unique. However, when each firm chooses a network design to maximize the lower bound of its profit, the equilibrium network designs chosen are the same as those chosen when bundling is ignored.

Suggested Citation

  • Phillip J. Lederer, 1993. "A Competitive Network Design Problem with Pricing," Transportation Science, INFORMS, vol. 27(1), pages 25-38, February.
    • Handle: RePEc:inm:ortrsc:v:27:y:1993:i:1:p:25-38
    DOI: 10.1287/trsc.27.1.25
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/trsc.27.1.25
    Download Restriction: no
    File URL: https://libkey.io/10.1287/trsc.27.1.25?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wan, Xi & Zou, Benteng, 2024. "Multi-product airport competition and optimal airport charges," Research in Transportation Economics, Elsevier, vol. 103(C).
    2. Phillip J. Lederer, 2020. "Location-Price Competition with Delivered Pricing and Elastic Demand," Networks and Spatial Economics, Springer, vol. 20(2), pages 449-477, June.
    3. Richard, Oliver, 2003. "Flight frequency and mergers in airline markets," International Journal of Industrial Organization, Elsevier, vol. 21(6), pages 907-922, June.
    4. Phillip J. Lederer & Ramakrishnan S. Nambimadom, 1998. "Airline Network Design," Operations Research, INFORMS, vol. 46(6), pages 785-804, December.
    5. Youdi Schipper & Piet Rietveld & Peter Nijkamp, 1998. "Deregulation and Schedule Competition in Simple Airline Networks," ERSA conference papers ersa98p205, European Regional Science Association.
    6. Xi Wan & Benteng Zou, 2020. "Airport Competition in Two-sided Markets," DEM Discussion Paper Series 20-01, Department of Economics at the University of Luxembourg.
    7. Wen, Yuh-Horng & Hsu, Chaug-Ing, 2006. "Interactive multiobjective programming in airline network design for international airline code-share alliance," European Journal of Operational Research, Elsevier, vol. 174(1), pages 404-426, October.
    8. Olivier Armantier & Oliver Richard, 2000. "An Empirical Model of Entry Across Airline Routes with Incomplete Information and Demand Synergies," Econometric Society World Congress 2000 Contributed Papers 1771, Econometric Society.
    9. Encaoua, David & Moreaux, Michel & Perrot, Anne, 1996. "Compatibility and competition in airlines demand side network effects," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 701-726, October.
    10. Patrice Marcotte & Anne Mercier & Gilles Savard & Vedat Verter, 2009. "Toll Policies for Mitigating Hazardous Materials Transport Risk," Transportation Science, INFORMS, vol. 43(2), pages 228-243, May.
    11. Oliver Richard, 2000. "An Empirical Analysis of Marketing Alliances Between Major US Airlines," Econometric Society World Congress 2000 Contributed Papers 1770, Econometric Society.
    12. Li, Zhi-Chun & Lam, William H.K. & Wong, S.C. & Fu, Xiaowen, 2010. "Optimal route allocation in a liberalizing airline market," Transportation Research Part B: Methodological, Elsevier, vol. 44(7), pages 886-902, August.
    13. Luce Brotcorne & Martine Labbé & Patrice Marcotte & Gilles Savard, 2008. "Joint Design and Pricing on a Network," Operations Research, INFORMS, vol. 56(5), pages 1104-1115, October.
    14. Adler, Nicole & Smilowitz, Karen, 2007. "Hub-and-spoke network alliances and mergers: Price-location competition in the airline industry," Transportation Research Part B: Methodological, Elsevier, vol. 41(4), pages 394-409, May.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ortrsc:v:27:y:1993:i:1:p:25-38. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.