The Role of Services: Pricing, Product Line, and Durability

In recent times due to the commoditization of goods, many traditional firms often offer services as well. In this paper, we study the role of services apart from being another revenue source and understand how to manage services. We first understand their role in pricing of the underlying good. Next we study the impact of services on good variety offered by the firm. Lastly, we study the impact of services on markets of durable goods with its specific characteristics. We characterize the optimal behavior of the firm and relate that to concepts of bundling and market segmentation. We show that existence of services help firms offer a wider variety of underlying goods. Further, we show that in the market of durable goods, offering service resolve some of key problems such as time inconsistency.