Pricing Games in a Service Industry: Equilibrium Segmentation

SYNOPTIC ABSTRACTDifferent valuations of the same service can provide profit opportunities to the service provider, by differentiating premiums for varying types of customers. However, the success of revenue management in such a market environment heavily depends on the quality of the market research on customer segmentation. We model and analyze customer equilibrium segmentation behavior in a closed system where service is provided by either of two centers. The perceived qualities of service depend on the type of pricing scheme to which the customer subscribes. The analysis is based upon a stochastic single period model where the customers are all privately informed. Some structural results are obtained and a numerical example is given for a 3-class system, with various managerial insights.