Competition in the advanced sale of service capacity

Abstract

Since service production and consumption are inseparable, many service firms sell their capacity in advance. This paper examines the optimality and practice of advanced sale of service capacity under duopolistic competition. Using a game-theoretic approach, it attempts to explain why, despite sophisticated practices of advanced sale in many service industries, many service firms still do not sell in advance. It demonstrates that competition and market price sensitivity to a firm's capacity can impact not only a firm's decision to sell in advance, but also its pricing and capacity allocation decisions.