36 Pages Posted: 11 Oct 2016 Last revised: 19 Apr 2017
Date Written: April 18, 2017
Unoccupied waiting feels longer than it actually is. Service providers operationalize this psychological principle by offering entertainment options in waiting areas. In a service cluster with a shared waiting space, firms have an opportunity to cooperate in the investment for providing entertainment options while competing on other service dimensions. In this paper, we develop a parsimonious model of co-opetition in a service cluster with shared entertainment options for waiting customers (e.g., a boardwalk). 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 a higher profit by joining a service cluster and engaging in co-opetition: we numerically show that the average firm profit under co-opetition is 7.65% higher than under monopoly. Achieving such benefits, however, requires a cost-allocation scheme properly addressing a fairness-efficiency tradeoff. In designing the cost-allocation scheme, the pursuit of fairness may backfire and lead to even lower profits than under pure competition. We show that as much as co-opetition facilitates resource sharing in a service cluster, it also 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
Yuan, Xuchuan and Dai, Tinglong and Chen, Lucy Gongtao and Gavirneni, Srinagesh, Co-opetition in Service Clusters with Waiting-Area Entertainment (April 18, 2017). Available at SSRN: https://ssrn.com/abstract=2849885 or http://dx.doi.org/10.2139/ssrn.2849885