A Study on Optimal Capacities of a New Cruise Line with Quadratic Operating Cost using Stackelberg Game Model

Abstract

The cruise industry has grown rapidly since the 1990s and today represents one of the healthiest sectors in the shipping industry, with newer and bigger vessel on order. With the capacity of cruise companies increasing steadily, competition in the market has also become fiercer in several regions. This research study, aims at investigating a market strategy which smaller cruise lines could adopt in order to gain market shares and compete with bigger players.

This thesis develops and applies a Stackelberg Game Model to find out what factors are important for a new cruise line penetrating into a particular market. Using the concept of Nash equilibrium, the optimal capacity of the follower, and then the total capacity and the price of the cruise market are computed.

Numerical examples with artificial market data are used to derive the most significant managerial implications that could help boosting the share of cruise market for the new entrants (followers). They show how the new entrants (followers) get a suitable way to have a larger market share.

Findings of thesis study could be useful for a beginning small cruise line to develop the marketing strategies to increase its market share after entering the cruise market. In addition, this study also provides a method for controlling the variable cost of the follower.

KEYWORDS: Nash Equilibrium, Stackelberg Game Model, Marketing Strategies, Cruise Line, Optimal Capacity