This document summarizes a system dynamics modeling project analyzing oligopolistic competition between strategic alliances in the transportation industry. The modeling approach involved 88 variables and one subscript to represent five classes of actors. Key factors analyzed included alliances' capacity offerings, ticket prices, revenues, profits, and their impact on demand realization. Preliminary simulation results demonstrated how targeting different revenue levels impacted these factors over time. The project aims to provide insights beyond traditional static analyses by capturing the dynamic competition between actors.

1. Oligopolistic Competition
between Strategic Alliances
Andreas Größler

2. Oligopolistic Competition between Strategic Alliances
AndreasGrößler,2010
Some thoughts about results and process of a
consulting project using system dynamics
• Focus is on process
– Work in progress
– Confidentiality
• Model complexity
• Indexed variables

3. Oligopolistic Competition between Strategic Alliances
AndreasGrößler,2010
Six honest men...
I Keep six honest serving-men:
(They taught me all I knew)
Their names are What and Where and When
And How and Why and Who.
Rudyard Kipling, 1902

4. Oligopolistic Competition between Strategic Alliances
AndreasGrößler,2010
Men 1 to 6
1. What: a case study in a major industry within the
transportation sector
2. Where: actual client (alliance headquarter) is located in
Germany but alliance is international
3. When: project started beginning 2010, still going on
4. How: a system dynamics analysis, of course
5. Why: it is a very interesting topic, methodological and
content wise (OK, there is money here as well)
6. Who: me as a member of Radboud University consulting
a group of consultants that consult the actual client (i.e.
the alliance)

5. Oligopolistic Competition between Strategic Alliances
AndreasGrößler,2010
So, why is it so interesting content wise?
Cf. Gomes-Casseres, 2006
Structure of the market
Structure
of players
in the market
One player Few players Many players
Single
firms
Constellation
of firms
Traditional
Monopoly
Traditional
Oligopoly
Traditional
Perfect
Competition
Industry
Cartel
Collective
Competition

6. Oligopolistic Competition between Strategic Alliances
AndreasGrößler,2010
So, why is it so interesting methodologically?
• Dynamics involved in situation
– Classical strategy tools are static
– Classical economic analysis has an equilibrium perspective
• Increasing complexity of model
– Face validity
– Parameterization
– Interpretability
• Using more than two (or three) actors in an competitive
analysis
– Game theory
– Subscripts in Vensim and their visual representation
– Structural rigidity in system dynamics?

7. Oligopolistic Competition between Strategic Alliances
AndreasGrößler,2010
Standing on the shoulders of giants (i)
Cf. Warren, 2008

8. Oligopolistic Competition between Strategic Alliances
AndreasGrößler,2010
Standing on the shoulders of giants (ii)
Cf. Bossel, 2004
Population
A
Population
Bgrowth of A loss of A growth of Bloss of B
competition
GROWTH
RATE A
GROWTH
RATE B
COMPETITION
EFFECT ON A
COMPETITION
EFFECT ON B
CARRYING
CAPACITYOF A
CARRYING
CAPACITYOF B
STARTING
VALUE POP A
STARTING
VALUE POP B

9. Oligopolistic Competition between Strategic Alliances
AndreasGrößler,2010
Finally: the model...
Market
SuppliersDemand
88 variables and 1 subscript (defining 5 classes)

10. Oligopolistic Competition between Strategic Alliances
AndreasGrößler,2010
The demand view
Total Actual
Demand Airtrafficdemand change
endogeneous
changes to demand
exogeneous
changes to demand
demand changes
due to population
demand changes
due to GDP
to
Market
view
from
Market
view
demand changes
due to travel affinity
<not-satisfied
demand effect
industry>
IniDemand
effect of price on
demand
from
Supplie
r view
max/min effect
price
price effect
industry
<AvgPriceIndustry><AvgIniPriceIndustry>
demand changes
due to seasonality
demand changes due
to exogenous shocks

11. Oligopolistic Competition between Strategic Alliances
AndreasGrößler,2010
The market view
not-satisfied
demand effect
industry
<Total Actual
Demand Airtraffic>
from
Deman
d view
attractiveness
attribute price
attractiveness
attribute product
attractiveness
attribute network
Realised
Demand
realising
demand
fraction unrealised
demand
<Ticket Price>
<capacity
offered>
from
Supplie
r view
from
Supplie
r view
to
Supplie
r view
IniRealisedDemand
to
Deman
d view
attractiveness
competitor
effect of unrealised
demand
<capacity
offered>
from
Supplie
r view
market share
competitor
preference
price
preference
product preference
network

12. Oligopolistic Competition between Strategic Alliances
AndreasGrößler,2010
The suppliers view
AC
operational
AC on order
ordering AC supplying AC retiring AC
production
delay
AC lifetime
seats per AC
legs per AC per
month
seat capacity
capacity
offered
to
Market
view
costs per leg
fixed costs
from
Market
view
capacity
utilization
from
Market
view
revenues
generated
profit
Ticket Price
price change
price adjustment
elasticity
variable costs
costs per pax
minimum ticket
price
to
Market
view
IniTicketPrice
IniACOnOrder IniACOperational
<realising
demand>
<realising
demand>
costs per AC
legs per month
<costs per
pax>
growth
percentage
target revenue
per leg
profit margin
revenue per
leg
AvgPriceIndustry
AvgIniPriceIndustry
to
Deman
d view

13. Oligopolistic Competition between Strategic Alliances
AndreasGrößler,2010
... and a validation run
120 AC
550 Dollar/Pax
3 M Pax/month
110 AC
525 Dollar/Pax
2 M Pax/month
100 AC
500 Dollar/Pax
1 M Pax/month
3
3
3
3
3
3
3
3 3 3 3 3 3
2 2 2 2
2
2
2
2
2
2
2
2
2
111
1
1
1
1
1
1
1
1
1
1
0 12 24 36 48 60 72 84 96 108 120
Time (month)
AC operational: validationRun AC1 1 1 1 1 1
Ticket Price: validationRun Dollar/Pax2 2 2 2 2 2
realising demand: validationRun Pax/month3 3 3 3 3

14. Oligopolistic Competition between Strategic Alliances
AndreasGrößler,2010
1.5 B
1.125 B
750 M
375 M
0
5
5
5
5
5
5
5 5
4
4
4
4
4
4
4 4
3
3
3
3
3 3 3 3
2
2
2
2 2 2 2 2
2
1
1
1
1 1 1 1 1
1
0 12 24 36 48 60 72 84 96 108 120
Dollar/month
1,500
1,125
750
375
0
5
5
5
5
5
5
5
5
4 4 4 4 4 4 4 4
3 3 3 3 3 3 3 3 32 2 2 2 2 2 2 2 2
1 1 1 1 1 1 1 1 1
0 12 24 36 48 60 72 84 96 108 120
Dollar/Pax
140
125
110
95
80
5 5
5
5
5
5
5 5
4 4 4
4
4
4
4
4
4
3 3 3
3
3
3
3
3
3
2 2 2
2
2
2
2
2
2
1 1 1
1
1
1
1
1
1
0 12 24 36 48 60 72 84 96 108 120
AC
2.5 M
2.125 M
1.75 M
1.375 M
1 M
5 5 5 5
5
5
5
5
4
4
4
4 4 4
4
4
3
3
3
3
3
3 3
3
2
2
2
2
2
2
2 2
1
1
1
1
1
1
1
1
1
0 12 24 36 48 60 72 84 96 108 120
Pax/month
A simulation experiment: different target revenues
Realising demand
Profit
Ticket price
Operational capacity

15. Oligopolistic Competition between Strategic Alliances
AndreasGrößler,2010
An illustrative (but real) simulation result
20 B
15 B
10 B
5 B
0 5
5
5
5
5
5
5
4
4
4
4
4
4
4
3
3
3
3
3
3
3
2
2
2
2
2
2
2
1
1
1
1
1
1
1
1
2010 2012 2014 2016 2018 2020
Time (month)
USD/month
overall profit[1] : test 1 1 1 1 1 1
overall profit[2] : test 2 2 2 2 2 2 2
overall profit[3] : test 3 3 3 3 3 3 3
overall profit[4] : test 4 4 4 4 4
overall profit[5] : test 5 5 5 5 5 5
4