In this research we study price competition in a HSR-airline duoulistic market using a game theoretic model with incomplete information. The airline is a private entity thereby maximizing payoff. The HSR authority, however, maximizes a weighted sum of profit and consumer surplus due to its nature as a public entity. Given that public entities are typically obliged to publicize their financial information, we consider a one-sided incomplete information setting in which HSR authority does not possess full information about the variable cost of the airline. We begin with solving the complete information game for equilibrium. The game is then extended to a discrete type incomplete information game, where there exists two types for the airline (low and high). The HSR authority does not know the type precisely but considers a probability for each type to happen. Given this probability, HSR maximizes its expected payoff. We analytically solve this game for equilibrium and discuss the impact of modeling parameters (e.g., speed, access time, type probability) on equilibrium prices. The game is further extended to a continuous type setting where HSR assumes that the airline’s cost is distributed in an interval, according to a given probability density function. This game is also solved analytically and equilibrium prices are obtained. Numerical analysis is conducted to show applicability of the approach and gain policy insights.
