Co-opetition in Service Clusters with Waiting-Area Entertainment

Manufacturing & Service Operations Management, Forthcoming

Johns Hopkins Carey Business School Research Paper No. 17-07

42 Pages Posted: 11 Oct 2016 Last revised: 10 Jul 2019

See all articles by Xuchuan Yuan

Xuchuan Yuan

Singapore University of Social Sciences

Tinglong Dai

Johns Hopkins University - Carey Business School

Lucy Gongtao Chen

NUS Business School, National University of Singapore

Srinagesh Gavirneni

Cornell University - Samuel Curtis Johnson Graduate School of Management

Date Written: July 3, 2019

Abstract

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 common space provides firms with an opportunity to cooperate in the investment for providing entertainment options while competing on other service dimensions.

Academic/Practical Relevance: Our paper contributes to the literature by being the first to examine co- opetition in a service setting, in addition to developing a novel model of waiting-area entertainment. It also sheds new light on the emerging practice of service clusters and small-footprint retailing.

Methodology: Using a queueing theoretic approach, we develop a parsimonious model of co-opetition in a service cluster with a common space.

Results: By comparing the case of co-opetition with two benchmarks (monopoly, and duopoly competition), we demonstrate that a service provider that would otherwise be a local monopolist can achieve higher prof- itability by joining a service cluster and engaging in co-opetition. Achieving such benefits, however, requires a cost-allocation scheme that properly addresses an efficiency-fairness tradeoff — 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 clusters; common spaces

JEL Classification: L24, L80, D74

Suggested Citation

Yuan, Xuchuan and Dai, Tinglong and Chen, Lucy Gongtao and Gavirneni, Srinagesh, Co-opetition in Service Clusters with Waiting-Area Entertainment (July 3, 2019). Manufacturing & Service Operations Management, Forthcoming; Johns Hopkins Carey Business School Research Paper No. 17-07. Available at SSRN: https://ssrn.com/abstract=2849885 or http://dx.doi.org/10.2139/ssrn.2849885

Xuchuan Yuan

Singapore University of Social Sciences ( email )

461 Clementi Road
599491
Singapore

Tinglong Dai (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://carey.jhu.edu/faculty/tinglong-dai-phd

Lucy Gongtao Chen

NUS Business School, National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 119245
Singapore
6565163013 (Phone)

Srinagesh Gavirneni

Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )

Ithaca, NY 14853
United States

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