When Should Service Firms Engage in Co‐Opetition? Reliability, Pricing, and Market Dynamics
Abstract
This paper investigates strategic repair co‐opetition between two rival service providers with unreliable servers. We develop a two‐stage queueing game, where in Stage 1, the competing firms select their repair mode: either operating independent repair teams (competition) or sharing resources (co‐opetition). In Stage 2, they set service prices for delay‐sensitive customers. We analyze how these repair modes influence steady‐state service availability, pricing equilibria, and profitability. Our findings reveal that sharing resources does not universally improve service capacity; the outcome depends on the firms' relative repair efficiency. Additionally, although higher availability increases maximum throughput, it simultaneously intensifies price competition. Consequently, firms' preferences are contingent on market demand. When demand is high, the capacity benefits dominate, driving firms to choose the repair mode that yields higher availability. Conversely, in low‐demand scenarios, firms favor the mode with lower availability to restrict capacity and soften price competition. In markets with intermediate demand, asymmetric pricing equilibria tend to drive firms toward divergent repair modes, preventing the formation of co‐opetition. Finally, we show that while a social planner prefers higher capacity to maximize welfare, independent firms may strategically restrict capacity, leading to a divergence from the social optimum.