IDEAS home Printed from https://ideas.repec.org/a/spr/annopr/v312y2022i2d10.1007_s10479-022-04624-4.html
   My bibliography  Save this article

Impact of capacity flexibility on service product line design

Author

Listed:
  • Wenzhu Zhang

    (Zhejiang University of Technology)

  • Yue Dai

    (Fudan University)

  • Lin Tian

    (Fudan University)

Abstract

With the prevalence of the gig economy, temporary and flexible jobs are commonplace, which offers the option of flexible capacity to firms. With capacity flexibility, firms could utilize the flexible service resource after demand realization. Although capacity flexibility has its advantages of mitigating demand uncertainty, firms may endure productivity inefficiency caused by temporary works or an imperfect match. This paper considers both factors and analyzes the impact of capacity flexibility on a monopoly’s capacity investment strategy, product-line design, consumer surplus and social welfare. We show that the capacity investment strategy could be categorized as No Flexibility, Pure Flexibility and Mixed Flexibility according to the relative efficiency and the unit cost of flexible resources. An interesting finding is that with flexible capacity, the service levels to both high-valuation and low-valuation consumers will be higher when the flexible resource is cost-wise efficient compared to the inflexible resource. Otherwise, the customer discrimination will increase with the service level to high-valuation consumers being higher and that to low-valuation consumers being lower. Furthermore, with flexible capacity, the consumer surplus and social welfare will increase only when the flexible resource is cost-wise efficient.

Suggested Citation

  • Wenzhu Zhang & Yue Dai & Lin Tian, 2022. "Impact of capacity flexibility on service product line design," Annals of Operations Research, Springer, vol. 312(2), pages 1095-1118, May.
  • Handle: RePEc:spr:annopr:v:312:y:2022:i:2:d:10.1007_s10479-022-04624-4
    DOI: 10.1007/s10479-022-04624-4
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10479-022-04624-4
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.

    File URL: https://libkey.io/10.1007/s10479-022-04624-4?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. H. Müge Yayla‐Küllü & Jennifer K. Ryan & Jayashankar M. Swaminathan, 2021. "Product Line Flexibility for Agile and Adaptable Operations," Production and Operations Management, Production and Operations Management Society, vol. 30(3), pages 725-737, March.
    2. Lacourbe, Paul, 2012. "A model of product line design and introduction sequence with reservation utility," European Journal of Operational Research, Elsevier, vol. 220(2), pages 338-348.
    3. Tamer Boyaci & Saibal Ray, 2003. "Product Differentiation and Capacity Cost Interaction in Time and Price Sensitive Markets," Manufacturing & Service Operations Management, INFORMS, vol. 5(1), pages 18-36, May.
    4. J. Miguel Villas-Boas, 1998. "Product Line Design for a Distribution Channel," Marketing Science, INFORMS, vol. 17(2), pages 156-169.
    5. Preyas S. Desai, 2001. "Quality Segmentation in Spatial Markets: When Does Cannibalization Affect Product Line Design?," Marketing Science, INFORMS, vol. 20(3), pages 265-283, August.
    6. Phillip J. Lederer & Lode Li, 1997. "Pricing, Production, Scheduling, and Delivery-Time Competition," Operations Research, INFORMS, vol. 45(3), pages 407-420, June.
    7. Kut C. So, 2000. "Price and Time Competition for Service Delivery," Manufacturing & Service Operations Management, INFORMS, vol. 2(4), pages 392-409, April.
    8. J. Miguel Villas-Boas, 2004. "Communication Strategies and Product Line Design," Marketing Science, INFORMS, vol. 23(3), pages 304-316, January.
    9. Ravi Anupindi & Li Jiang, 2008. "Capacity Investment Under Postponement Strategies, Market Competition, and Demand Uncertainty," Management Science, INFORMS, vol. 54(11), pages 1876-1890, November.
    10. Liang Guo & Juanjuan Zhang, 2012. "Consumer Deliberation and Product Line Design," Marketing Science, INFORMS, vol. 31(6), pages 995-1007, November.
    11. Guozhao Cao & Zhan Wang, 2021. "Product flexibility of competitive manufactures: the effect of debt financing," Annals of Operations Research, Springer, vol. 307(1), pages 53-74, December.
    12. Jain, Aditya & Bala, Ram, 2018. "Differentiated or integrated: Capacity and service level choice for differentiated products," European Journal of Operational Research, Elsevier, vol. 266(3), pages 1025-1037.
    13. Jan A. Van Mieghem & Maqbool Dada, 1999. "Price Versus Production Postponement: Capacity and Competition," Management Science, INFORMS, vol. 45(12), pages 1639-1649, December.
    14. Gad Allon & Awi Federgruen, 2007. "Competition in Service Industries," Operations Research, INFORMS, vol. 55(1), pages 37-55, February.
    15. Jan A. Van Mieghem, 1998. "Investment Strategies for Flexible Resources," Management Science, INFORMS, vol. 44(8), pages 1071-1078, August.
    16. K. Sridhar Moorthy, 1984. "Market Segmentation, Self-Selection, and Product Line Design," Marketing Science, INFORMS, vol. 3(4), pages 288-307.
    17. Jan A. Van Mieghem, 2003. "Commissioned Paper: Capacity Management, Investment, and Hedging: Review and Recent Developments," Manufacturing & Service Operations Management, INFORMS, vol. 5(4), pages 269-302, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Heng-Li Liu & Quan-Lin Li, 2023. "Matched Queues with Flexible and Impatient Customers," Methodology and Computing in Applied Probability, Springer, vol. 25(1), pages 1-26, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tang, Christopher S., 2010. "A review of marketing-operations interface models: From co-existence to coordination and collaboration," International Journal of Production Economics, Elsevier, vol. 125(1), pages 22-40, May.
    2. Hai Che & Chakravarthi Narasimhan & V. Padmanabhan, 2010. "Leveraging uncertainty through backorder," Quantitative Marketing and Economics (QME), Springer, vol. 8(3), pages 365-392, September.
    3. Yunchuan Liu & Tony Haitao Cui, 2010. "The Length of Product Line in Distribution Channels," Marketing Science, INFORMS, vol. 29(3), pages 474-482, 05-06.
    4. Weixin Shang & Liming Liu, 2011. "Promised Delivery Time and Capacity Games in Time-Based Competition," Management Science, INFORMS, vol. 57(3), pages 599-610, March.
    5. Serguei Netessine & Terry A. Taylor, 2007. "Product Line Design and Production Technology," Marketing Science, INFORMS, vol. 26(1), pages 101-117, 01-02.
    6. Liu Yang & Chi To Ng & Yaodong Ni, 2017. "Flexible capacity strategy in an asymmetric oligopoly market with competition and demand uncertainty," Naval Research Logistics (NRL), John Wiley & Sons, vol. 64(2), pages 117-138, March.
    7. Xiao Huang & Dan Zhang, 2020. "Service Product Design and Consumer Refund Policies," Marketing Science, INFORMS, vol. 39(2), pages 366-381, March.
    8. Jan A. Van Mieghem, 2003. "Commissioned Paper: Capacity Management, Investment, and Hedging: Review and Recent Developments," Manufacturing & Service Operations Management, INFORMS, vol. 5(4), pages 269-302, July.
    9. Bing Jing, 2006. "On the Profitability of Firms in a Differentiated Industry," Marketing Science, INFORMS, vol. 25(3), pages 248-259, 05-06.
    10. Bing Jing, 2011. "Seller honesty and product line pricing," Quantitative Marketing and Economics (QME), Springer, vol. 9(4), pages 403-427, December.
    11. Palsule-Desai, Omkar D. & Tirupati, Devanath & Shah, Janat, 2015. "Product line design and positioning using add-on services," International Journal of Production Economics, Elsevier, vol. 163(C), pages 16-33.
    12. Li, Dong, 2020. "When less is more: Recovery technology investment and segmentation for uptime-centered services," European Journal of Operational Research, Elsevier, vol. 286(1), pages 267-281.
    13. Xiao, Tiaojun & Xu, Tiantian, 2014. "Pricing and product line strategy in a supply chain with risk-averse players," International Journal of Production Economics, Elsevier, vol. 156(C), pages 305-315.
    14. Ming Hu & Xi Li & Mengze Shi, 2015. "Product and Pricing Decisions in Crowdfunding," Marketing Science, INFORMS, vol. 34(3), pages 331-345, May.
    15. Boonman, H.J. & Hagspiel, V. & Kort, P.M., 2015. "Dedicated vs product flexible production technology: Strategic capacity investment choice," European Journal of Operational Research, Elsevier, vol. 244(1), pages 141-152.
    16. Yang, Liu & Ng, C.T., 2014. "Flexible capacity strategy with multiple market periods under demand uncertainty and investment constraint," European Journal of Operational Research, Elsevier, vol. 236(2), pages 511-521.
    17. Ioannis Stamatopoulos & Christos Tzamos, 2019. "Design and Dynamic Pricing of Vertically Differentiated Inventories," Management Science, INFORMS, vol. 65(9), pages 4222-4241, September.
    18. Tang, Yao & Chen, Rachel R. & Guan, Xu, 2021. "Daily-deal market with consumer retention: Price discrimination or quality differentiation," Omega, Elsevier, vol. 102(C).
    19. Huang, Yeu-Shiang & Chen, Si-Hen & Ho, Jyh-Wen, 2013. "A study on pricing and delivery strategy for e-retailing systems," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 59(C), pages 71-84.
    20. Sun, Yiqi & Wu, Zhengping & Zhu, Wanshan, 2022. "When do firms benefit from joint price and lead-time competition?," European Journal of Operational Research, Elsevier, vol. 302(2), pages 497-517.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:annopr:v:312:y:2022:i:2:d:10.1007_s10479-022-04624-4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.