Preventing Collusion in Indian Airlines: A Game Theoretic Approach

Abstract

The paper examines the dynamics between collusion and competition in the Indian aviation sector, with a special focus on the duopolistic Indigo and Air India-dominated market. The deregulation of Indian aviation in 1994 brought about an important shift in the industry, which ultimately led to the emergence of the competitive market we have today. However, as the industry became a duopoly, collusion became a threat, posing a risk to the interests of consumers. This study examines the pricing, frequency of flights, and CO2 emissions interactions between these two major airlines using game theory models. It also assesses the possible effects of collusion on customers and other stakeholders. A key finding of the study is that collusion risks consumer welfare by raising prices and lowering market competition, even if it may increase profits for businesses. To reconcile consumer interests with sustainable sector growth, the study concludes with recommendations for optimal government intervention policies. These include regulations to prevent collusion and incentives to use sustainable aviation fuels. In our work, the necessity of minimising environmental consequences and maximising economic and social outcomes in the Indian aviation industry is emphasised through the proposal of a sustainable development framework.