Service Provision and Product Differentiation: A Comment To "A Note On The Strategic Use of Service"

Abstract

Hegji and Moore (2005, p. 140) state, "The bottom line for managers is that
although the provision of service may at times seem attractive, in that increased services
allow for higher prices, price competition should be considered the preferred
long-run strategy." Contrary to their result we find that service provision is profitable
in the long run and can be associated with lower prices. Additionally, we discuss
the value of product differentiation. Our paper builds on their results in three ways:
providing an additional setting of homogeneous goods duopoly, providing the profits
under the three scenarios (Hegji and Moore's monopoly and differentiated price
duopoly, and our homogeneous goods duopoly) with and without service provision,
and a discussion of the managerial implications in terms of both service provision
and product differentiation.