Using Game Theory to Maximize Profits

Question 1: Change in Southwest Airlines’ Boarding Process 

Southwest Airlines is among the most popular cost-saving airline companies. The company started small with four planes that flew to three cities in Texas. Since then, the airline company has been growing to an extent of ranking among the most profitable low-cost airlines. Its revenue has grown out of its strategy of making the planes affordable through lower fares. People who would otherwise been unable to afford a plane are able to use them to fly to their destinations. The stability of the company is demonstrated by its forty three years of operation where it has delivered 17.5 percent annual average returns. During its many years of operation, the company has never been close to filing for bankruptcy under Chapter 11. 

Apart from its lower fares, the company has also generated revenues through its organized procedure that determine how passengers board Southwest Airline planes. Prior to the introduction of the changes, the plan operated through an open-seating arrangement. No passengers were provided with assigned seats thus meaning that passengers were free to sit anywhere on the plane. Although the open-seating plan is disliked because it splits families and does not guarantee one a good seat, it is much faster than the reserved seating system. Passengers thus spend shorter time at the gates thus saving the airline money. 

Despite the advantages of the system, the company has moved to introduce some changes by creating an organized procedure for boarding the aircrafts. Previously people boarded on first-come-first-serve basis which led to many passengers camping out of the gate to secure a good seating position. The airline decided to end the menace by introducing a process where each passengers is assigned a boarding group, classified as A, B or C as well as boarding number. The passengers boarded the plane based on the groups. Group A went in first, followed by B and subsequently C. After boarding, they were free to choose the seats that they preferred (Talwakar, 2013). The system brought organization during the boarding process. The boarding number was determined by when a passenger checked in for the flight. Those who checked first boarded first. The airline then introduced the EarlyBird check-in where passengers paid $10, an additional fee to their one-way fare (Talwakar, 2013). The passengers who pay additionally are automatically checked-in and have a higher chance of securing a priority seating. However, it does not guarantee a good seat. The system has led to generation of additional revenues for the airline company. 

Question 2: Main Goal of Introducing EarlyBird Check-in 

EarlyBird check-in was introduced by Southwestern airlines to replace a secondary market that had sprung up as a result of online technology and were thus offering check-in service for passengers at $1. The company envisioned that they could benefit from the service and thus shut down the third-party websites and unveiled the EarlyBird check-in. As a result of introduction of the service, the company generated an extra $98 million in 2010 and an additional $142 million in 2011 (Talwakar, 2013). The decision to adopt the services has thus been a profitable venture for the company. 

Question 3: Game Theory Strategy to Increase Profits 

Game theory is applied in business to help give a company an upper hand. Game theory is concerned with devising strategies that help a firm excel in business (Hilbe, Traulsen, & Sigmund, 2015). The airline company utilized two strategies to boost profit making. One of the strategies involved using open-seating arrangement that allowed it to save time and costs thus lowering its fare. The second strategy involved employing EarlyBird check-in strategy where passengers paid an extra amount to be checked in. The strategy also gave passengers priority in seating arrangement but was not guaranteed. Therefore, many passengers paid the extra $10 to enter the lottery although some ended up not getting the good seats. The passengers had to make a choice between paying $10 to enter a lottery for a good seat or pay $0 and get an open-seating arrangement. The competitors in this case are fellow travelers who also have to make a decision whether they want a good seat or not. There are some passengers who care about saving hence will not pay the extra fare while there are others that would pay the extra fair to get a good seat. 

Outcome of the Game 

The game involved: 

None of the passengers paying the EarlyBird check-in and all the people have an equal chance of getting good seats. 

If few people pay the extra fare for the EarlyBird check-in they are guaranteed a perfect seat. 

If each of the passengers pays the extra fare for EarlyBird check-in then they are placed in a lottery that determines the persons that will get the prized seats. 

It thus implies that all passengers will be placed in the seating lottery because most will pay $10 for the best seats. Even when they pay the extra fare, they are not guaranteed the standard seat. 

Passenger’s dominant strategy 

The passenger’s dominant strategy in this case entails paying $10 for EarlyBird Check-in. 

Prisoner’s Dilemma 

The prisoner’s dilemma arises as a result of EarlyBird check-in procedures. The passengers are forced to make a decision on whether to pay the $10 to enter the lottery system or not. In their mind, they know that paying the extra fare guarantees a good seat while not paying leads to being placed in a lottery system. However, the payment only facilitates early check-in but does not guarantee a good seat. Most passengers thus end paying the extra fare to avoid getting the bad seats. 

Question 4: Advantages and Disadvantages of EarlyBird check-in process 

Implementation of the EarlyBird check-in system provides Southwest airlines one main advantage since it helps in increasing revenues earned. People pay the extra fare believing that it guarantees them good seats. However, the money also assures clients an early check-in. The company has not placed a limit on the number of people that can apply for the EarlyBird check-in system and therefore as many passengers as possible can use the system. The company is thus able to earn more revenue from the strategy as passengers will pay feeling guaranteed to get a good seat. However, when the number of customers that apply for the good seats is too high, the strategy fails to provide the promised benefits to customers. 

The disadvantage of the strategy is its potential of breeding dissatisfaction in some customers. They would become disgruntled when unable to be given good seats as promised. Passengers feel entitled to the good seats because they have paid extra for it. While Southwest Airlines has a guaranteed revenue stream, customers are not assured of good seats as promised. Some may feel that the strategy is aimed at fleecing them off their money in pretense of offering good seats. 

Further analysis of the Southwest Airlines system also reveals interesting information that has a direct impact on the company as well as on passenger’s perception. The boarding system gives priority to families, people with disability as well as unaccompanied minors. The A list also includes business and super travelers who are given an authority to board the airplanes early under any prevailing circumstances. Notably, it is a disadvantage to the consumer but the practice is still accepted by both the passengers and the airline company. 

The B group boards the airplane next. It consists of passengers who have purchased the EarlyBird check-in. The seats sold as good seats are ones situated next to windows or those that are close to the aisle. Most passengers find them desirable. The C group enters the plane last. The seats that provided are located mostly at the back of the plane. However, the advantage is that most passengers still prefer the airline as a result of other conveniences that it offers, such as low fares. The passengers are also not obligated to be the first ones to check in. 

Question 5: How other Companies can utilize the Game Approach 

The game theory is concerned with studying human conflict and cooperation when presented with a competitive situation. It mainly involves development of strategies that help people get ahead of others in terms of business (Dixit & Skeath, 2015). As a former worker at Verizon Wireless, I had the opportunity to be directly involved in some strategies that were aimed at maximizing firm’s profits. As Wu (2019) noted, there is an additional strategy that can be utilized in the business to create more profits by utilizing game theory approaches. In Verizon, game strategy has been utilized in designing unlimited plans that are provided to the consumers. 

The unlimited plans for the company are offered to customers in two choices that are divided into Go Unlimited as well as Beyond Unlimited. The plans differ in terms of availability of internet connectivity for the network. When using the Go Unlimited plan, the customers become prioritized whenever their devices want to connect to a tower and the tower has attained its maximum capacity at that moment (Lin, Lin, Wu, & Wang, 2016). A customer would be placed on line and be prioritized to access the network once users have gone down. The consumer gets an opportunity to use the network freely once the remaining users are below the maximum capacity. 

The Beyond Unlimited plan includes the consumer gaining the same experience but have to attain a usage of 22 GB in a month. When clients have not been prioritized, the customers have access to internet but are provided with lower speeds. The company thus provides all users with a chance to use the internet through the shared resource. Another game strategy would involve upgrading the technology to increase speeds of connectivity through a 5G network. The clientele would have improved speeds while the company increases its revenues (Chochliouros et al., 2017). The strategy would allow the company to gain an edge ahead of other players in the industry. 

References 

Chochliouros, I. P., Kostopoulos, A., Spiliopoulou, A. S., Dardamanis, A., Neokosmidis, I., Rokkas, T., & Goratti, L. (2017, November). Business and market perspectives in 5G networks. In  2017 Internet of Things Business Models, Users, and Networks  (pp. 1-6). IEEE. 

Dixit, A. K., & Skeath, S. (2015).  Games of Strategy: Fourth International Student Edition . WW Norton & Company. 

Hilbe, C., Traulsen, A., & Sigmund, K. (2015). Partners or rivals? Strategies for the iterated prisoner's dilemma.  Games and economic behavior ,  92 , 41-52. 

Lin, Y. B., Lin, Y. W., Wu, J. C., & Wang, Y. C. (2016). An investigation of telecom mobile data billing plans.  J. Internet Serv. Inf. Secur. ,  6 (3), 1-26. 

Talwakar, P. (2013, March 5). Southwest Airlines boarding and game theory. Mind Your Decisions. Retrieved from https://mindyourdecisions.com/blog/2013/03/05/southwest-airlines-boarding-and-game-theory/ 

Wu, J. J. (2019). The Game of International Business.