Pricing Game between Customized Bus and Conventional Bus with Combined Operational Objectives

Abstract

Social welfare and profit are two main factors to be included in the operational goal of bus services. It is assumed that conventional bus services are “welfare pro” with more consideration of social welfare, while customized bus services are “profit pro” with more consideration of profit, and the goal of each bus service is to maximize the overall payoffs, namely, the weighted sum of social welfare and profit. A bi-level pricing game is proposed to shed light on the impact of two bus services’ pricing competition on the payoffs when the operational objectives with different weights of social welfare are adopted. A case study shows that the pricing strategies of conventional bus services have a significant impact on the customized bus services. The customized bus operator should consider more “social welfare” to attract customers and to achieve the overall payoffs when the conventional bus service takes a high price strategy, and the customized bus operator can take a strategy of a high price to maintain its overall payoffs when the conventional bus operator maximizes the social welfare. It is found that there exists a trade-off by which both sides obtain the balanced overall payoffs.