How a Game Theoretic Approach Can Minimize the Cost of Train Passenger Services: An Intermodal Competition between Rail and Road Transport

Abstract

Game theory models provide very powerful tools for evaluating strategies that are beneficial to both rail and road operators competing for passengers on parallel routes. This study examines how game theory can help rail operators who are incurring losses on passenger transport to identify strategies that can minimise costs, using the methodology of dual linear programming to analyse strategies. In identifying the best strategies for minimising costs for the railway operator, the best strategies for maximising profits for the road operators are also identified. The game model is set up between two passenger transport operators (rail and road) and is based on the income earned by the road operators from passengers. This study illustrates the following: how the strategies of the two competitors (rail and road) are determined; the formation of the payoff matrix and the presentation of the mathematical problem for the two competitors; and the results and verification of the best strategies for both competitors. The Leonid Hurwicz criterion was used to verify the optimal strategies.