Pricing for services with cross-segment externalities, capacity constraints, and competition

Wei Gu, H. Sebastian Heese, Eda Kemahlıoğlu-Ziya and Serhan Ziya

European Journal of Operational Research, 2024, vol. 313, issue 2, 801-813

Abstract: In many service systems such as movie theaters, sports clubs, or hotels, different customer segments share physical space, and the presence of customers from different segments may affect the utility a customer receives from the service. We consider a setting where two competing facilities offer service to two distinct types of customers and study whether and when the firms can benefit from using differential pricing. The two firms do not explicitly decide whether to use uniform or differential pricing. Rather, we derive our findings by characterizing and comparing all equilibria that might arise when differential pricing is feasible. Our results suggest that if the network externalities are symmetric, that is, if the two customer segments feel equally about the presence of customers of the other segment, then the firms never benefit from price differentiation, unless the network externalities are negative and strong when compared to the travel/inconvenience cost that the customers incur when receiving service from their less preferred facility. Interestingly, we find that using differential pricing can even hurt firm profits, when it leads to fierce price competition between the two service providers.

Keywords: Pricing; Limited capacity; Network externalities; Competition (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221723007245
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:313:y:2024:i:2:p:801-813

DOI: 10.1016/j.ejor.2023.09.021

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().