Managing Service System with Self-Interested Actors

How the strategic interaction of self-interested players impacts managerial decisions and market outcomes in a service system has attracted the attention of researchers for many years. Recent studies have shown that ignoring the strategic behavior of customers may result in suboptimal operational decisions in service and production systems. In this thesis, I add to this literature by focusing on service systems in which some or all of the players are self-interested. In the first chapter, I develop a simple model of a service provider with a fixed capacity facing two segments of customers one of which behaves strategically. I show that the response of the firm to the strategic behavior of the customers is not obvious and it substantially depends on a number of market factors.;In the subsequent chapters, I study large-scale service marketplaces where many service providers (agents) compete with each other to respond to the requests of utility maximizing customers. The main focus of these chapters is the role of the moderating firm, an independent firm that establishes the marketplace. In Chapter 2, I first discuss the different tools that the moderating firm can provide in a marketplaces such as operational tools, which specify how customers and agents are matched efficiently, and strategic tools, which allows communication and collaboration opportunity among agents. Then, I examine the impacts of these different tools on the outcome of competition between agents. Somewhat surprisingly, I show that matching customers and agents more efficiently may be detrimental to overall market efficiency. Further, I show that to reap the "expected" gains of an efficient matching mechanism, the moderating firm may need to complement this mechanism by facilitating communication among agents. In Chapter 3, I consider a marketplace where the moderating firm has a process for screening the skills of agents in addition to the tools I discuss in Chapter 2. I study how the firm can use this screening mechanism to control the skill-mix in the marketplace and maximize its profits.