A game theory application of a cruise value chain – the case of China

Tianjin cruise port

Regardless of the facts showing a booming Chinese cruise market, cruise operations in China are very different from the current practices of the two major cruise markets – the US and the Mediterranean Sea. The recent port-study of PortEconomics member Grace Wang, co-authored with Qingcheng Zeng, Chenrui Qu and Joan Mileski (Texas A&M University at Galveston, USA) aims to quantify pricing strategies and possible incentive mechanisms of cruise operations in China.

Using optimization in economic-based game theory, the complexity of the pricing strategies and interaction and/or possible coordination within the cruise value-added chain can be captured. The results show that a coordinative pricing strategy with Shapley profit redistribution within the value-added chain offers benefits to both cruise passengers and service suppliers. With two subsidy scenarios, one to the passenger and the other to the travel agent, a cooperative pricing strategy outperforms other strategies and successfully increases market shares and total revenue.

The advantages of coordination between participants in cruise value chain are quantified. Effective strategies for attracting players participating in cruise value chain are designed. This paper will provide market participants with strategies to enhance their decision-making processes.

Source: porteconomics.eu

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