Capacity Co-Opetition in Service Clusters with Waiting-area Entertainment

Abstract

Co-opetition becomes a more and more popular strategy in industry and is a growing force in the innovation landscape. Seldom research has considered the cases that co-opetition firms are providing service to customers who are waiting-time sensitive. This paper studies an M/M/1 queueing model with two service firms who compete the customers from the same source. Customers need to decide whether to join one of two queues or balk. On the other hand, the firms cooperate each other by sharing the waiting area. By assuming that the customers are waiting-time sensitive, but they enjoy the entertainment of the waiting-area as well, we find the Nash equilibriums that each provider decides its own service capacity and the two firms jointly determine the waiting-area entertainment (WAE) level. When the co-opetition market exists, we find some insightful results as below. 1)Only when the market size is large enough and at a suitable WAE level, can the co-opetition or monopoly market form, so a suitable WAE level can help service provider(s) survive and make profit. 2) As the effectiveness of the entertainment options increases, the service providers will adopt the entertainment options, and the optimal service capacities decrease with the effectiveness and converge to the potential market size; 3) When the effectiveness of the entertainment options is high enough, the low decrement of the service capacity will not lead to longer waiting time, the service provider should decrease the WAE level to save cost; 4) When the effectiveness of the entertainment options is too low, the high decrement of the service capacity leads to longer waiting time. To retain customers, the service providers should increase the WEA level to shorten the customers’ perceived waiting time; 5) The entertainment resource sharing in the case of co-opetition creates a higher profit than the case of competition, but lower profit than the case of monopoly.