The Protection Economy: Occasional Service Failure as a Business Model

Eitan Gerstner, Daniel Halbheer and Oded Koenigsberg
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Daniel Halbheer: HEC Paris - Ecole des Hautes Etudes Commerciales
Oded Koenigsberg: School of Business [London] - LSBU - London South Bank University

Working Papers from HAL

Abstract: Should a provider deliver a reliable service or should it allow for occasional service failures? This paper derives conditions under which randomizing service quality can benefit the provider and society. In addition to cost considerations, heterogeneity in customer damages from service failures allows the provider to generate profit from selling damage prevention services or offering compensation to high-damage customers. This strategy is viable even when reputation counts and markets are competitive.

Keywords: Service Quality; Service Reliability; Service Failure; Damage Control (search for similar items in EconPapers)
Date: 2015-12-18
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Working Paper: The Protection Economy: Occasional Service Failure as a Business Model (2015)
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