Should Captive Sardines Be Compensated? Serving Customers in a Confined Zone

30 Pages Posted: 12 Jan 2009

See all articles by Rachel R. Chen

Rachel R. Chen

University of California, Davis - Graduate School of Management

Eitan Gerstner

University of California, Davis

Yinghui (Catherine) Yang

Graduate School of Management, UC Davis

Date Written: August 19, 2008

Abstract

Many services are delivered to a (large) number of customers simultaneously within a confined zone (e.g., restaurants, resorts, trains, and airplanes). Under unexpected high demand, customers experience discomfort from two major sources: (a) the sardine effect that arises when too many customers (i.e., "sardines") compete for space and service resources; (b) the captivity effect that results from an exit cost incurred by customers who self-select to "escape" the unpleasant service. This paper investigates the optimal compensation and pricing policies under these two effects. We find that offering compensation to sardines can improve profit and social welfare. However, consumers do not benefit when compensated for the discomfort from crowding. This paper also provides insights by exploring the impact of changes in the two effects on price and profit.

Keywords: service quality, service pricing, customer experience, negative externality, customer discomfort management, compensation, customer satisfaction

Suggested Citation

Chen, Rachel R. and Gerstner, Eitan and Yang, Yinghui (Catherine), Should Captive Sardines Be Compensated? Serving Customers in a Confined Zone (August 19, 2008). UC Davis Graduate School of Management Research Paper No. 03-09, Available at SSRN: https://ssrn.com/abstract=1326499 or http://dx.doi.org/10.2139/ssrn.1326499

Rachel R. Chen (Contact Author)

University of California, Davis - Graduate School of Management ( email )

One Shields Avenue
Davis, CA 95616
United States
530-752-7619 (Phone)
530-752-2924 (Fax)

Eitan Gerstner

University of California, Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616
United States
530-752-5506 (Phone)
530-752-2924 (Fax)

Yinghui (Catherine) Yang

Graduate School of Management, UC Davis ( email )

One Shields Avenue
Apt 153
Davis, CA 95616

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