Optimal Pricing Decisions of Competing Air-Cargo-Carrier Systems - Impacts of Risk Aversion, Demand, and Cost Uncertainties

Xin Wen, Xiaoyan Xu, Tsan Ming Choi, Sai Ho Chung

Research output: Journal article publicationJournal articleAcademic researchpeer-review

5 Citations (Scopus)

Abstract

Air-cargo transportation has become increasingly important for global logistics systems nowadays. However, due to the intensive market competition and diverse uncertainties arising from demand and operating costs, the pricing decisions for air-cargo carriers are extremely challenging but underexplored. Besides, many airlines are holding risk-averse attitudes in decision making in order to survive in the highly volatile and competitive market. Therefore, in this paper, we apply the mean-variance theory to characterize the risk-averse behaviors of decision makers, and analytically derive the equilibrium prices for two competing risk-averse air-cargo carriers under demand and cost uncertainties. Then, we uncover how the crucial factors, like risk sensitivity coefficients, market competition, market share, demand uncertainty, and cost uncertainty, affect the carriers' optimal prices. In addition, important cost thresholds and relative risk-averse attitude thresholds are identified. Our analytical results demonstrate the symmetry in the optimal prices and critical thresholds for the two carriers. Besides, we reveal the importance to consider both carrier's own and the competitor's risk attitudes and operating characteristics in decision making when market competition exists. Moreover, we reveal the direct and indirect impacts of risk attitudes on the optimal prices, thus highlighting the importance to integrate risk considerations into the optimal pricing decision framework. Finally, we show that market situations play a critical role in characterizing the effects of diverse parameters on the equilibrium prices, which should be carefully evaluated by decision makers in air-cargo carriers.

Original languageEnglish
Article number8830421
Pages (from-to)4933-4947
Number of pages15
JournalIEEE Transactions on Systems, Man, and Cybernetics: Systems
Volume50
Issue number12
DOIs
Publication statusPublished - Dec 2020

Keywords

  • Air-cargo carrier systems
  • mean-variance (MV) theory
  • optimization
  • risk analysis
  • stochastic supply chain systems

ASJC Scopus subject areas

  • Software
  • Control and Systems Engineering
  • Human-Computer Interaction
  • Computer Science Applications
  • Electrical and Electronic Engineering

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