Price regulation strategies for domestic air routes with consideration of airline competition behaviors
|關鍵字:||國內航線;運價管制;航空公司競爭;賽局理論;Domestic air routes;Price regulation;Airlines competition;Game-theoretical model|
Deregulation on air transport has become a trend all over the world since the Open Sky policy implemented by the US government in 1978. However, the domestic air transport market in Taiwan is still under ceiling and floor prices regulation since most of air routes are off-shore and the only one transport channel of off-shore residents to and from Taiwan Island. According to current pricing regulation, the ceiling price is basically determined according to the operating cost of the air route operated by each of domestic airlines and the regulated floor prices are set as the half of the regulated ceiling prices for the rooms of flexible pricing in response to peak and off-peak demands, suggesting that the less efficient airline will enjoy high regulated prices and yield management and competition behaviors of airlines are not considered. To understand the effect of regulated ceiling and floor prices for each of air routes to the total social welfare, a bi-level game-theoretical model is developed. The upper level aims to determine the optimal regulated ceiling and floor prices towards social welfare maximum; while the lower level models the completion behaviors of domestic air transport market for maximizing their own profit by optimally determining the prices and service frequencies subject to regulated ceiling and floor prices and airline capacity. Additionally, the Logit model is used to estimate the market share of airlines under various prices and service frequencies. It is worth noting that most of the previous game-theoretical models attempt to model the competition behaviors at the route-level (i.e. considering only one specific route) by assuming that aircraft investment and operation costs of airlines can be clearly attributed to each operating route among all. To overcome this unrealistic assumption, the proposed airline competition model (i.e. the lower level) assumes airlines simultaneously determine prices and service frequencies to maximize their total profit at company level in response to the various competitive environments and operating cost of each routes. A case study on Taiwan domestic air market is conducted to show the applicability of the proposed model. Due to the solving complexity of the proposed model, the upper level is first simplified by several preset feasible pricing scenarios with different ranges between ceiling and floor prices, Genetic Algorithms (GAs) is then used to solve the optimally determined prices and service frequencies based on the derived Nash-equilibrium conditions under various scenarios. The results show that ceiling price regulations are in effect, especially for the monopolistic air routes; but floor price regulations are no effect, suggesting that two sets of price regulation schemes should be proposed for monopolistic air routes (operated by only one airline) and competitive air routes (operated by more than two airlines). Based on the proposed model, the optimal ceiling and floor prices for a total of 19 air routes can be solved through a systematic design of regulated price scenarios.