A Study Of Using Game Theory To Model The Competition Between High-speed Train And Air Transport

The high-speed rail(HSR)system has been globally proven to be an efficient transportation mode.It is expected to fill the demand gap for faster intercity movement of passengers and to cater for the ever increasing passenger traffic.The introduction of High-speed Rail(HSR)changed the dynamics of passenger transport.Therefore,understanding the market scenario after the entry of the HSR is of utmost importance.The development of High-speed rail has had a profound impact on air services.Substantial Evidence of huge losses in airline market shares and reductions in airline operations due to the opening up of new HSR lines had been realized in many countries with High-speed lines.Therefore,Air transport and High-speed trains are competing fiercely for passengers,especially in European and Asian countries.The competition usually focuses on services,frequency and better connectivity to the city and urban centers.The High-speed Train is usually perceived as being safer and equal in terms of comfort to Air transport,this situation has generated a modal redistribution of passengers between the air and railway transportation modes.A few researchers have attempted to study and develop mathematical models that investigate the competition between High-speed Rail and Air transport.Most studies so far carried out revealed the impacts of Modal redistribution and loss of revenue to other modes of transportation especially the air transport.This gap of information gave birth to this research which aims to study the use of Game theory to Model the competition between High-speed Train and Air transport.This project is developed based on a Market Entry Game Model to examine the competition between High-speed Rail and Air Transportation over a medium distance with a focus on Equilibrium Ticket Pricing and Service frequency.A case study is proposed in China along the Beijing-Shanghai corridor with a distance of 1300km.Air transport serves as the incumbent of the transportation market while High-speed Train(HSR)is an entrant attempting to compete on Ticket Price and Service frequency.To determine the Equilibrium Ticket Price and Service frequency,the market entry game model is analyzed under a variety of settings,the incumbent having two strategies namely Accommodation and Deterrence strategies while the Entrant has two options to Enter or Stay out(strategize)of the market.A backward induction Programming with Microsoft Excel is used to solve this problem.Results show that the optimal strategy for HSR is to enter the game irrespective of Air transport decision,while the optimal strategy for Airline is dependent on the Maximum profit obtained.The competition is simulated with Air transport starting on either of its strategies and sets price and frequency while HSR enters the game and determines its optimal payoff,price,and frequency.Based on the fixed price and frequency obtained by HSR,Air determines its own optimal payoff,price,and frequency also.The analysis takes into consideration sunk cost,safety and comfort levels as well as subsidies and social welfare.In conclusion,the analysis shows the Accommodation strategy yielding higher payoff with higher capacity of Air,however,the payoff is much higher with higher Demand.The deterrence strategy,however,shows high payoff for both modes when air sets a low price and high frequency.