38 Pages Posted: 17 Aug 2011
Date Written: August 17, 2011
Service providers and their customers are sometimes victims of failures caused by exogenous factors such as unexpected bad weather, power outages, or labor strikes. When such no-fault failures occur in confined zones, service providers may confine customers against their will if making arrangements for them to leave is very costly. Such confinements, however, can result in severe pain and suffering, and customer complaints put regulators under pressure to pass a customer bill of rights that allows captive customers to abort failed services. This paper shows that service providers are better off preempting such laws by voluntarily allowing customers to escape the service under failure. Moreover, service providers can profit by targeting compensation to customers based on whether they use or leave the service under failure.
Keywords: service failure, customer bill of rights, advanced selling, targeted compensation
Suggested Citation: Suggested Citation
Chen, Rachel R. and Gerstner, Eitan and Yang, Yinghui (Catherine), Customer Bill of Rights Under No-Fault Service Failure: Confinement and Compensation (August 17, 2011). Available at SSRN: https://ssrn.com/abstract=1911071 or http://dx.doi.org/10.2139/ssrn.1911071