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A re-examination of experience service offering and regular service pricing under profit maximization

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  • Lian, Zhaotong
  • Gu, Xinhua
  • Wu, Jinbiao

Abstract

A firm may offer an experience service free of charge to attract more customers to buy its regular service. This paper provides an economic analysis for interactions between the capacity-constrained firm and its waiting-averse customers, generating certain managerial insights. Free services should be sped up to move customers onto the paid service if it is idle, or slowed down to hold onto customers and avoid exacerbating congestion in the paid service if it is busy. A lower price should be charged for the regular service as compensation to customers for service delay if more of them buy that service. When more customers arrive for experience services, a greater price reduction should be offered to attract them into the regular service if it becomes more congested.

Suggested Citation

  • Lian, Zhaotong & Gu, Xinhua & Wu, Jinbiao, 2016. "A re-examination of experience service offering and regular service pricing under profit maximization," European Journal of Operational Research, Elsevier, vol. 254(3), pages 907-915.
    • Handle: RePEc:eee:ejores:v:254:y:2016:i:3:p:907-915
    DOI: 10.1016/j.ejor.2016.05.023
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