Non-Cooperative Game Theory in Measuring Strategic Interactions between Airline Joint-Venture Alliances

Abstract

Purpose: The paper proposes a research method for measuring strategic interactions between airline joint-venture alliances that compete with each other. Design/Methodology/Approach: The proposed method is based on the non-cooperative game theory with a Nash-Cournot equilibrium. It consists in the development of a model that compares economic performance of airline long-haul, intercontinental operations in two consecutive scenarios, before and after joining an alliance. Findings: A model of strategic interactions between airline joint-venture alliances can be successfully based on the logic of the Nash-Cournot equilibrium. Furthermore, the game theory is an effective tool for analysing economic performance of airline joint business agreements. Practical Implications: The method can be used in measuring bottom line performance of long-haul airline joint business agreements worldwide. For example, on the EU-US airline market, the method can be used in the analysis of the following alliances: United Airlines-Lufthansa Group; American Airlines-International Airlines Group-Finnair; Delta Air Lines-Air France KLM-Virgin Atlantic. Originality/Value: This is a novel approach to research of advanced airline alliance strategies.