Service design under asymmetric service provider competition: Applications of AI services

Abstract

Recently, with the advancement of artificial intelligence (AI) technology (e.g. ChatGPT), more enterprises are incorporating AI into their customer service to reduce costs. However, the excessive use of AI technology will also reduce consumers’ satisfaction with services, and finding a balance between high-quality human service and cost-effective AI service is crucial for enterprises. To answer this question, this paper establishes a service competition model in which a service integrator (SI) procures services from an AI service provider (ASP) and a human service provider (HSP), and then combines them to offer integrated services to consumers. The findings reveal that, under certain conditions, the introduction of low-cost AI service by SI may result in increased product price. This occurs because ASP tends to set higher price for AI service to ensure its profitability per unit. When the consumer service sensitivity is moderate, SI can generate greater profits by skillfully designing blended service instead of relying on a single service. HSP encourages SI to adopt some of its competitors’ AI service when the consumer service sensitivity is low, while ASP does the opposite. Interestingly, a win–win scenario emerges, where all competing service providers earn higher profits compared to offering exclusive services, and SI profits and consumer welfare are also higher. In addition, service integration is essential to increase revenue for all parties involved, but the revenue increase is the same regardless of which party performs the service integration.