The role of fences in oligopolistic airline markets

In this paper we simulate carriers' capacity allocation practices in order to investigate the role of fences and forecasting for maintaining high load factor levels and returns in oligopolistic airline markets. We analyse the case where firms apply a well-established revenue management heuristic, called the expected marginal seat revenue rule, extending the original set-up provided by Belobaba (1989) to account for different levels of forecasting, segmentation, and passenger participation. Substantial differences in terms of revenue and load factor emerge and a key role is played by fences.