An Analysis of Bid-Price Controls for Network Revenue Management
Management Science
Competitive and Cooperative Inventory Policies in a Two-Stage Supply Chain
Management Science
Dynamic Pricing in Airline Seat Management for Flights with Multiple Flight Legs
Transportation Science
Revenue Management: Research Overview and Prospects
Transportation Science
Selling to the Newsvendor: An Analysis of Price-Only Contracts
Manufacturing & Service Operations Management
Dynamic Programming
Optimal Dynamic Auctions for Revenue Management
Management Science
Revenue Management Games: Horizontal and Vertical Competition
Management Science
A Note on Probability Distributions with Increasing Generalized Failure Rates
Operations Research
Competition and Cooperation in Decentralized Push and Pull Assembly Systems
Management Science
A Bargaining Framework in Supply Chains: The Assembly Problem
Management Science
Designing Mechanisms for the Management of Carrier Alliances
Transportation Science
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Major airlines are selling increasing numbers of interline itineraries in which flights operated by two or more airlines are combined and sold together. One reason for this increase is the rapid growth of airline alliances, which promote the purchase of interline itineraries and, therefore, virtually extend the reach of each alliance member's network. This practice, however, creates a difficult coordination problem: Each member of the alliance makes revenue management decisions to maximize its own revenue and the resulting behavior may produce suboptimal revenue for the alliance as a whole. Airline industry researchers and consultants have proposed a variety of static and dynamic mechanisms to control revenue management decisions across alliances (a dynamic mechanism adjusts its parameters as the number of available seats in the network changes and time passes). In this paper, we formulate a Markov game model of a two-partner alliance that can be used to analyze the effects of these mechanisms on each partner's behavior. We begin by showing that no Markovian transfer pricing mechanism can coordinate an arbitrary alliance. Next, we examine three dynamic schemes as well as three forms of the static scheme widely used in practice. We derive the equilibrium acceptance policies under each scheme and use analytical techniques as well as numerical analyses of sample alliances to generate fundamental insights about partner behavior under each scheme. The analysis and numerical examples also illustrate how certain transfer price schemes are likely to perform in networks with particular characteristics.