Competition and contracting in service industries

Competition and contracting in service industries

By
Dominic DiPalantino, Ramesh Johan, Gabriel Weintraub
Operations Research Letters. September
2011, Vol. 39, Issue 5, Pages 390-396

In service industries with congestion effects, two very different contractual structures are commonly observed, depending on whether or not firms choose to offer a guaranteedservice level. We analyze the impact of these choices on market outcomes in oligopolistic industries. Our results highlight how different contractual agreements change the intensity of price competition in service industries. Broadly speaking, we show that competition is intensified when firms choose to offer service level guarantees.