Co-opetition in Service Clusters with Waiting-Area Entertainment
35 Pages Posted: 11 Oct 2016 Last revised: 11 Mar 2018
Date Written: February 5, 2018
Problem definition: Unoccupied waiting feels longer than it actually is. Service providers operationalize this psychological principle by offering entertainment options in waiting areas. A service cluster with a shared waiting space provides firms with an opportunity to cooperate in the investment for providing entertainment options while competing on other service dimensions.
Academic/Practical Relevance: Despite the widespread usage of waiting-area entertainment in the service industry, research remains lacking toward a systematic understanding at the service design level. Additionally, there is a paucity of analytical models linking the intra-firm dynamics in customer-interface design and inter-firm strategic interactions, particularly in the little-explored clustering setting.
Methodology: Using a queueing theoretic approach, we develop a parsimonious model of co-opetition in a service cluster with shared entertainment options for waiting customers (e.g., a boardwalk).
Results: By comparing the case of co-opetition with two benchmarks (monopoly, and duopoly competition), we demonstrate that a service provider which would otherwise be a local monopolist can achieve higher profitability by joining a service cluster and engaging in co-opetition. Achieving such benefits, however, requires a cost-allocation scheme properly addressing an efficiency-fairness tradeoff. In designing the cost- allocation scheme, the pursuit of fairness may backfire and lead to even lower profitability than under pure competition.
Managerial Implications: We show that as much as co-opetition facilitates resource sharing in a service cluster, it heightens price competition. Furthermore, as the intensity of price competition increases, surprisingly, service providers may opt to charge higher service fees, albeit while providing a higher entertainment level.
Keywords: service co-opetition, waiting-area entertainment, marketing/operations interfaces, service cluster, customer-interface design
JEL Classification: L24, L80, D74
Suggested Citation: Suggested Citation