On the Benefit of Privatization in a Mixed Duopoly Service System

• DOI: 10.1287/mnsc.2022.4424
• Publication Date: 2022-05-05T12:52:01Z
• Authors: Wenhui Zhou; Weixiang Huang; Vernon N. Hsu; Pengfei Guo
• Keywords: Profit maximization; Duopoly

We consider a mixed duopoly service system with two providers (SPs): one private and the other public. The public SP’s objective is welfare maximization, whereas SP profit driven. Customers are heterogeneous in terms of their quality tastes choose from three options, namely, joining queue, balking (or taking an outside option). first scenario where provides premium regular service. Paradoxically, we find that although can be less than obtained only profit-seeking SPs. further demonstrate maximum social achieved by partially privatizing SP, is, including both maximization as arguments its function. In extreme cases which capacity very small, fully socially desirable. then alternate setting obtain similar conclusions. These findings, however, rely on assumption option exists for customers, should cautious generalizing to no-balking situations. This paper was accepted Jayashankar Swaminathan, operations management. Funding: W. Zhou supported National Natural Science Foundation China [Grants 71925002 71731006]. Huang acknowledges financial support 71801096 72101090] Guangdong Basic Applied Research [Grant 2022A1515011983]. V. N. Hsu General Fund Hong Kong Grants Council CUHK14526216]. P. Guo received 15502820]. Supplemental Material: e-companion data available at https://doi.org/10.1287/mnsc.2022.4424 .