We study a two-player two-fare-class static single-period capacity allocation game with complete information. Nonnested (partitioned) booking limit policies are investigated in both noncooperative and cooperative situations. We show the existence of unique Nash equilibrium in the noncooperative situation. In the cooperative game, we analyze the cost saving of the two players and investigate the concavity of the objective function. For both noncooperative and cooperative settings, we assume the demands to be a truncated normal distribution and provide a comprehensive sensitivity analysis to discover the effects of unit revenue, rejection cost, and transfer rate on the equilibrium solution. Our numerical experiments show that the nonnested model can be a good approximation to the nested booking limit model. For the cooperative setting, we identify conditions that give rise to improvements in the total system revenue. Finally, under each game-theoretic setting, we present the managerial implications of our solutions along with numerical examples. Table 1 List of notation in alphabetical order Symbol Description b iK Capacity limit chosen by Pi for K-fare class customer (decision variable). b i First-order derivative of V i = 0 with respect to b 1L . C i Capacity of Pi. J i Expected profit of player Pi. J cTotal expected joint profit of the two players: J c = J c1 + J c2 in the cooperative game.
J ciExpected profit of Pi (i = 1, 2) in the cooperative game, J * i
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