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Offering a downgraded service to enhance profit?

Author

Listed:
  • Shaorui Li

    (Southwestern University of Finance and Economics, Chengdu, China)

  • Jing Chen

    (Dalhousie University, Halifax, Canada)

  • Bintong Chen

    (University of Delaware, Newark, USA)

Abstract

As market competition is intensified, many firms compete through service. In this paper, we develop a model to examine whether a service supplier should offer a downgraded service as a complement to its high-level service, to compete with a provider of low-level service. We find that only when the service efficiency of the downgraded service is competitively efficient can the service supplier enhance profit by offering the downgraded service. We identify the conditions under which these services can coexist, and when the service supplier should offer the downgraded service. We also show the impact of the downgraded service on pricing decisions, as well as on demands and profits, in such a supply chain. Managerial implications are discussed and numerical examples are included to illustrate the major results in this paper.

Suggested Citation

  • Shaorui Li & Jing Chen & Bintong Chen, 2016. "Offering a downgraded service to enhance profit?," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 67(2), pages 302-311, February.
    • Handle: RePEc:pal:jorsoc:v:67:y:2016:i:2:p:302-311
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    Cited by:

    1. Sun, Libo & Jiao, Xiaoting & Guo, Xiaolong & Yu, Yugang, 2022. "Pricing policies in dual distribution channels: The reference effect of official prices," European Journal of Operational Research, Elsevier, vol. 296(1), pages 146-157.
    2. Rappaport, Ron D. & Miles, John, 2017. "Cloud energy storage for grid scale applications in the UK," Energy Policy, Elsevier, vol. 109(C), pages 609-622.
    3. Stamolampros, Panagiotis & Korfiatis, Nikolaos, 2019. "Airline service quality and economic factors: An ARDL approach on US airlines," Journal of Air Transport Management, Elsevier, vol. 77(C), pages 24-31.
    4. Saha, Subrata & Mantin, Benny & Majumder, Sani & Nielsen, Izabela, 2024. "On the interdependence of strategic inventories and new product generation introduction," International Journal of Production Economics, Elsevier, vol. 271(C).

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