Service Competition and Service War: A Game-Theoretic Analysis

We conduct a game-theoretic analysis on a duopoly pure service game. We consider the situation in which two service providers compete in a market with respect to the service-level decision on a particular common service product. We first construct an analytical model to examine the existence of the Nash equilibrium in the service game. We then prove that the characteristics of equilibrium service levels depend heavily on the prices offered by the service providers. After that, we include service costing and analytically study how it affects the equilibrium service levels under different cases. Finally, we examine the service game under the service war in which one service provider chooses to deviate from the equilibrium service level with the goal of improving market share. Important managerial insights on the first-mover advantage, market share, and service levels under the service war are revealed and discussed.