Value-Added Service Strategies for Retailers Oriented to Uncertain Demand

Abstract

Whereas retailers pursue providing value-added services (VAS) to capture additional markets and maximize profits, market demand uncertainty decreases retailers' incentives to provide VAS. Therefore, we analyze retailers' VAS provision strategies in the market demand uncertainty. We then investigate the VAS provision strategies and explore the impact of market demand uncertainty, competitive effects, and market loss effects on retailers' VAS provision strategies. We prove that when the market loss effect is high, the retailers provide VAS that even face lower consumer preferences. When the market loss effect is low, neither retailer offers VAS, even when consumer preferences are high. When the market loss effect and consumer preferences match each other, only one retailer offers VAS as an equilibrium strategy. The competition effect and market demand uncertainty exacerbate this result. Notably, the combination of VAS cost, competition effect, and market loss effect puts the retailer in a prisoner's dilemma under market demand uncertainty. Interestingly, the competition effect mitigates situations where retailers suffer from the prisoners' dilemma. Besides, the competition effect and market demand uncertainty exacerbate the difficulties of extracting optimal social welfare in different scenarios.