Analyzing network selection competition between airlines using Graph Model for Conflict Resolution in the foresight of two steps

The selection of network structures is instrumental for airlines to gain upper hand in market competition. In the existing research, game theoretical methodologies are utilized to provide equilibria for suggesting strategies in competition. Nowadays, utilities for airlines are increasingly affected by factors which are difficult to calibrate, such as geopolitical events. Besides, airlines as wise decision makers not only consider the strategic moves in the foresight of one step, but also what could be the counteractions from opponent airlines. In this paper, the selection of network structures between two competing airlines are investigated using graph model for conflict resolution (GMCR), an effective methodology for solving strategic conflicts. The equilibria of competition are calculated without the requirement of explicit expression of utilities, and reflecting the perception of each airlines in two steps. Theorems are provided to indicate the existence of the equilibria in the competition, including Nash equilibria and sequentially stable (SEQ) equilibria for the foresight of two steps. Comparing with the equilibria calculated in the existing literature based on the same modelling settings, the Nash equilibria suggested by GMCR are consistent with those calculated by classical game theory approach. Besides, GMCR can indicate SEQ equilibria as an enhanced understanding of competition reflecting longer foresights of DMs. In particular, the SEQ equilibria in Scenarios 1 and 2 of this paper indicate alternative strategies by adopting which both airlines could be more profitable compared with the strategies suggested by Nash equilibria. As demonstrated in this paper, GMCR not only requires less information in modelling, but is also capable of providing more insightful strategies for DMs in aviation industry. Moreover, the framework of addressing the network selection problem using GMCR could provide a useful paradigm for analyzing wider range of strategic competition problems in aviation industry in the future.