Revenue management under horizontal and vertical competition within airline alliances

• We consider a network revenue management problem under horizontal and vertical competition.
• In particular, competition within an alliance is considered.
• An iterative algorithm is applied to compute a Nash equilibrium.
• A computational study is performed.

We present a model to optimize a competitor׳s behavior in a network revenue management game within an airline alliance. In particular, we model two forms of competition; horizontal competition with parallel substitutable flights and vertical competition with both competitors operating adjacent connecting flights in a code sharing agreement. We compute pure Nash equilibria with an iterative algorithm presented in an earlier paper. A computational study shows that the algorithm is also suited for computing Nash equilibria taking both types of competition into account and that code sharing increases revenues for both competitors. However, the difference decreases as the network size and mean demand increase.