A Dynamic Game of Airline Network Competition: Hub-and-Spoke Networks and Entry Deterrence

In a hub-and-spoke network, the total profit function of an airline is supermodular with respect to its entry decisions at different city-pairs. This source of complementarity implies that a hub-and-spoke network can be an effective strategy to deter entry of competitors. This paper presents a dynamic game of airlines network competition that incorporates this entry deterrence motive for using hub-and-spoke networks. We summarize the results of the estimation of the model, with particular attention to empirical evidence on the entry deterrence motive.Airline networks; Hub-and-spoke; Entry deterrence; Dynamic games; Supermodularity

A Dynamic Oligopoly Game of the US Airline Industry: Estimation and Policy Experiments

This paper studies the contribution of demand, costs, and strategic factors to the adoption of hub-and-spoke networks in the US airline industry. Our results are based on the estimation of a dynamic oligopoly game of network competition that incorporates three groups of factors that may explain hub-and-spoke networks: (1) travelers may value the services associated with the scale of operation of an airline in the hub airport; (2) operating costs and entry costs in a route may decline with the airline's scale of operation in the origin and destination airports (e.g., economies of scale and scope); and (3) a hub-and-spoke network may be an effective strategy to deter the entry of other carriers. We estimate the model using data from the Airline Origin and Destination Survey with information on quantities, prices, and entry and exit decisions for every airline company in the routes between the 55 largest US cities. As methodological contributions, we propose and apply a method to reduce the dimension of the state space in dynamic games, and a procedure to deal with the problem of multiple equilibria when using a estimated model to make counterfactual experiments. We find that the most important factor to explain the adoption of hub-and-spoke networks is that the cost of entry in a route declines importantly with the scale of operation of the airline in the airports of the route. For some of the larger carriers, strategic entry deterrence is the second most important factor to explain hub-and-spoke networks.Airline industry; Hub-and-spoke networks; Entry costs; Industry dynamics; Estimation of dynamic games; Counterfactual experiments in models with multiple equilibria.

Quantum Strategies Win in a Defector-Dominated Population

Quantum strategies are introduced into evolutionary games. The agents using quantum strategies are regarded as invaders whose fraction generally is 1% of a population in contrast to the 50% defectors. In this paper, the evolution of strategies on networks is investigated in a defector-dominated population, when three networks (Regular Lattice, Newman-Watts small world network, scale-free network) are constructed and three games (Prisoners' Dilemma, Snowdrift, Stag-Hunt) are employed. As far as these three games are concerned, the results show that quantum strategies can always invade the population successfully. Comparing the three networks, we find that the regular lattice is most easily invaded by agents that adopt quantum strategies. However, for a scale-free network it can be invaded by agents adopting quantum strategies only if a hub is occupied by an agent with a quantum strategy or if the fraction of agents with quantum strategies in the population is significant.Comment: 8 pages, 7figure

A Dynamic Oligopoly Game of the US Airline Industry: Estimation and Policy Experiments

This paper studies the contribution of demand, costs, and strategic factors to the adoption of hub-and-spoke networks in the US airline industry. Our results are based on the estimation of a dynamic oligopoly game of network competition that incorporates three groups of factors which may explain the adoption of hub-and-spoke networks: (1) travelers value the services associated with the scale of operation of an airline in the hub airport (e.g., more convenient check-in and landing facilities); (2) operating costs and entry costs in a route may decline with an airline's scale operation in origin and destination airports (e.g., economies of scale and scope); and (3) a hub-and-spoke network may be an effective strategy to deter the entry of other carriers. We estimate the model using data from the Airline Origin and Destination Survey with information on quantities, prices, and entry and exit decisions for every airline company in the routes between the 55 largest US cities. As a methodological contribution, we propose and apply a simple method to deal with the problem of multiple equilibria when using the estimated model to predict the effects of changes in structural parameters. We find that the most important factor to explain the adoption of hub-and-spoke networks is that the cost of entry in a route declines very importantly with the scale of operation of the airline in the airports of the route. For some of the larger carriers, strategic entry deterrence is the second most important factor to explain hub-and-spoke networks.Airline industry; Hub-and-spoke networks; Entry costs; Industry dynamics; Estimation of dynamic games; Counterfactuals with multiple equilibria

Establishing social cooperation: the role of hubs and community structure

Prisoner’s Dilemma games have become a well-established paradigm for studying the mechanisms by which cooperative behaviour may evolve in societies consisting of selfish individuals. Recent research has focussed on the effect of spatial and connectivity structure in promoting the emergence of cooperation in scenarios where individuals play games with their neighbors, using simple ‘memoryless’ rules to decide their choice of strategy in repeated games. While heterogeneity and structural features such as clustering have been seen to lead to reasonable levels of cooperation in very restricted settings, no conditions on network structure have been established which robustly ensure the emergence of cooperation in a manner which is not overly sensitive to parameters such as network size, average degree, or the initial proportion of cooperating individuals. Here we consider a natural random network model, with parameters which allow us to vary the level of ‘community’ structure in the network, as well as the number of high degree hub nodes. We investigate the effect of varying these structural features and show that, for appropriate choices of these parameters, cooperative behaviour does now emerge in a truly robust fashion and to a previously unprecedented degree. The implication is that cooperation (as modelled here by Prisoner’s Dilemma games) can become the social norm in societal structures divided into smaller communities, and in which hub nodes provide the majority of inter-community connections

Network cost allocation games based on threshold discounting

Consider networks in which each pair of nodes needs to communicate. The communication flow between any pair of nodes can be delivered through a direct link or via some connecting path in the network. By discounting the cost of flow through links for which the high flow volume is anticipated, network designers exploit economies of scale. This approach encourages the concentration of flows and use of relatively small number of links. This led to the design of well known hub networks and more recently hub-like networks. Applications include telecommunications, airline traffic flow, and mail delivery networks. The cost of services delivered through such networks is distributed among its users who may be individuals or organizations with possibly conflicting interests. The cooperation of these users is essential for the exploitation of economies of scale. Consequently, there is a need to find a fair distribution of the cost of providing the service among network users. In this paper, we present a survey of some recent results in the development of cooperative game theory based mechanisms to efficiently characterize cost allocation solutions for hub and hub-like networks. Specifically, we formulate the associated hub and hub-like network cost allocation games. Then, while paying special attention to users\u27 contribution to economies of scale, we demonstrate that some attractive cost allocation solutions, which provide users with the incentive to cooperate, can be efficiently computed

Communication, coordination and networks

We study experimentally how the network structure and length of pre-play communication affect behavior and outcome in a multi-player coordination game with conflicting preferences. Network structure matters but the interaction between network and time effects is more subtle. Under each time treatment, substantial variations are observed in both the rate of coordination and distribution of coordinated outcomes across networks. But, increasing the communication length improves both efficiency and equity of coordination. In all treatments, coordination is mostly explained by convergence in communication. We also identify behaviors that explain variations in the distribution of coordinated outcomes both within and across networks

Prisoner's dilemma in structured scale-free networks

The conventional wisdom is that scale-free networks are prone to cooperation spreading. In this paper we investigate the cooperative behaviors on the structured scale-free network. On the contrary of the conventional wisdom that scale-free networks are prone to cooperation spreading, the evolution of cooperation is inhibited on the structured scale-free network while performing the prisoner's dilemma (PD) game. Firstly, we demonstrate that neither the scale-free property nor the high clustering coefficient is responsible for the inhibition of cooperation spreading on the structured scale-free network. Then we provide one heuristic method to argue that the lack of age correlations and its associated `large-world' behavior in the structured scale-free network inhibit the spread of cooperation. The findings may help enlighten further studies on evolutionary dynamics of the PD game in scale-free networks.Comment: Definitive version accepted for publication in Journal of Physics

Topological enslavement in evolutionary games on correlated multiplex networks

Governments and enterprises strongly rely on incentives to generate favorable outcomes from social and strategic interactions between individuals. The incentives are usually modeled by payoffs in evolutionary games, such as the prisoner's dilemma or the harmony game, with imitation dynamics. Adjusting the incentives by changing the payoff parameters can favor cooperation, as found in the harmony game, over defection, which prevails in the prisoner's dilemma. Here, we show that this is not always the case if individuals engage in strategic interactions in multiple domains. In particular, we investigate evolutionary games on multiplex networks where individuals obtain an aggregate payoff. We explicitly control the strength of degree correlations between nodes in the different layers of the multiplex. We find that if the multiplex is composed of many layers and degree correlations are strong, the topology of the system enslaves the dynamics and the final outcome, cooperation or defection, becomes independent of the payoff parameters. The fate of the system is then determined by the initial conditions

Game Theoretic Formation of a Centrality Based Network

We model the formation of networks as a game where players aspire to maximize their own centrality by increasing the number of other players to which they are path-wise connected, while simultaneously incurring a cost for each added adjacent edge. We simulate the interactions between players using an algorithm that factors in rational strategic behavior based on a common objective function. The resulting networks exhibit pairwise stability, from which we derive necessary stable conditions for specific graph topologies. We then expand the model to simulate non-trivial games with large numbers of players. We show that using conditions necessary for the stability of star topologies we can induce the formation of hub players that positively impact the total welfare of the network.Comment: Submitted to 2012 ASE Social Informatics Conferenc