A Decision-Making Model of Price Control for Administering Authority

Abstract

There are few quantitative studies on decision making of air ticket price control problem. In this paper we establish a game decision making model of price control for government by introducing two new factors: consumer’s surplus (the public welfares) and the passenger load rate (LR). We get some interesting conclusions from modeling and discussion. The administering authority, CAAC (Civil Aviation Administration of China) is inclined to ignore the public welfares when setting a higher control price and the airlines are always inclined to disobey the control price of CAAC for achieving a higher passenger load rate and strengthening the competition edge. As a whole, the optimal strategy of CAAC is to set an inter-zone control price and the optimal strategy of airlines is to self determinate a price between the inter-zone prices. The reason of decision dissonance is that the cost evaluation of ticket pricing for the two players has tremendous difference.