To read this content please select one of the options below:

Comparing three contract types to optimize profits in service firm – digital service platform relationships

Richard Tarpey (Department of Management, Jennings A. Jones College of Business, Middle Tennessee State University, Murfreesboro, Tennessee, USA)
Jinfeng Yue (Department of Management, Jennings A. Jones College of Business, Middle Tennessee State University, Murfreesboro, Tennessee, USA)
Yong Zha (University of Science and Technology of China, Hefei, China)
Jiahong Zhang (University of Science and Technology of China, Hefei, China)

Journal of Service Theory and Practice

ISSN: 2055-6225

Article publication date: 16 April 2024

29

Abstract

Purpose

The importance of service firms cooperating with digital platforms is widely acknowledged. The authors study three contractual relationships (fixed-cost, cost-sharing, and profit-sharing) between service firms (specifically hotels) and digital platforms in a highly fragmented service supply chain to examine which of these contract types optimizes profits.

Design/methodology/approach

The authors extend prior models analyzing the optimal expected total profit from the travel service firm (hotel)–digital platform relationship, providing new insights into each contract type’s ability to coordinate decentralized systems and optimize profits for both parties.

Findings

This study finds that fixed cost contracts cannot coordinate the decentralized system. Cost-sharing contracts can coordinate the decentralized system but only allow one channel profit split. In contrast, profit-sharing contracts may not always perfectly coordinate the decentralized system but support alternative profit allocations. Practically, both profit-sharing and cost-sharing contracts are preferable to fixed-cost contracts.

Practical implications

The paper includes implications for travel service firm managers to consider when structuring contracts with digital platforms to focus on profit optimization. Profit-sharing contracts are most preferable when cost and revenue data are fully shared between parties, while cost-sharing contracts are preferable over fixed-cost contracts.

Originality/value

This study extends prior investigations into the utility of different contract types on the optimal profit of a travel service firm (hotel)-digital platform provider relationship. The research fills a gap in the literature concerning the contracts used in these relationship types.

Keywords

Citation

Tarpey, R., Yue, J., Zha, Y. and Zhang, J. (2024), "Comparing three contract types to optimize profits in service firm – digital service platform relationships", Journal of Service Theory and Practice, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JSTP-02-2023-0031

Publisher

:

Emerald Publishing Limited

Copyright © 2024, Emerald Publishing Limited

Related articles