Dynamic revenue management games with forward and spot markets

We study dynamic games between two providers — an entrant and an incumbent — each with fixed capacity, who compete to sell in both a forward market and a spot market. We analyse two types of games between the providers: (a) a sequential game where the incumbent plays first followed by the entrant and (b) a repeated game where both providers make simultaneous decisions but do this repeatedly an infinite number of times. Demand is either from a single buyer or a population of independent consumers. We identify outcomes for the sequential game for varying levels of demand. For the repeated game, we identify the existence of subgame–perfect Nash equilibria and show how the two providers can obtain higher average revenues by implicit collusion. The study has implications for revenue management markets where providers have dynamic competitive interactions rather then a single static interaction.