Pricing Strategies in Revenue Management
with Multiple Firms Competing for Customers

Yue (Diana) Dai
Industrial Engineering and Operations Research,
North Carolina State University
Authors: Yue Dai, Xiuli Chao, Shu-Cherng Fang and Henry L.W. Nuttle

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We consider the pricing strategies of multiple firms providing same service and competing for a common pool of customers in a revenue management context. The demand at each firm depends on the selling prices charged by all firms, each of which satisfies demand up to a given capacity limit. We use game theory to analyze the systems when firms face either a deterministic demand or a general stochastic demand. The existence and uniqueness conditions of a Nash equilibrium are derived, and we calculate the explicit Nash equilibrium point when the demand at each firm is a linear function of price. We also conduct sensitivity analysis of the equilibrium prices with respect to cost and capacity parameters.

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