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Institute of Transportation, MOTC

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Trans. Planning Journal

Title Price Regulation Strategies for Domestic Air Routes with Consideration of Airline Competition Behaviors
Author Jung-Fang Lee and Yu-Chiun Chiou
Summary   The domestic air transport market in Taiwan is governed by ceiling and floor prices regulations. According to current pricing regulations, less efficient airlines enjoy highly-regulated prices but not yield management or consideration of airlines’ competition behavior. To understand the effect of regulated ceiling and floor prices for each air route on social welfare, a bi-level game-theoretical model is developed. The upper level aims to determine the optimal regulated ceiling and floor prices to maximize social welfare, while the lower level determines the competition behaviors of domestic air transport markets for maximizing their own profits by optimally setting prices and service frequencies subject to regulated ceiling and floor prices and airline capacity. A case study on the Taiwanese domestic air market is conducted to show the applicability of the proposed model. The results suggest that stricter and looser price regulation schemes should be proposed for monopolistic air routes and competitive air routes, respectively.
Vol. 43
No. 3
Page 265
Year 2014
Month 9
Count Views:346