Optimal pricing for ferry services with a new entrant: a game-theoretic perspective

Abstract

This paper investigates the pricing model between an incumbent ferry firm and a new-entrant sea bus firm. First, we study the influences of sea buses entering the ferry market. Next, based on the differences in power structures, we analyze the impact of weather on both companies’ operations in Bertrand and two Stackelberg models, and we consider a case in which both firms belong to the same parent firm. Finally, we study the strategies adopted by the ferry firm to protect its market share against the invasion of sea buses. We find that the sea bus firm’s entrance into the ferry market will increase the number of passengers taking ferries. Both companies’ profits are greater in the two Stackelberg models than in the Bertrand model. The two companies’ profits in the Stackelberg models partially rely on the weather. Finally, vicious price competition will lead to losses on both sides.

KEYWORDS:

• Ferry service
• sea bus
• optimal pricing
• game theory
• Stackelberg model

Acknowledgments

The authors thank the reviewers and editors for their critical but constructive comments, without which this work would not have been possible.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

The research is supported by the Department of Natural Resources of Guangdong Province (China) under Grant [2020]071, the National Natural Science Foundation of China under Grant 72071093, 71901146 and 71804034, the 2019 Guangdong Special Support Talent Program-Innovation and Entrepreneurship Leading Team (China) under Grant 2019BT02S593, and the Pearl River Talent Recruitment Project of Guangdong under Grant 2017GC010445.