Opaque selling vs traditional selling: optimal decisions for service providers in a competitive market

Abstract

PurposeOpaque selling has become popular among service providers in recent years. Although many researchers have investigated the optimality of opaque selling for service providers focusing on heterogeneous consumers, one question remaining unexplored is how the service providers’ optimal decisions are impacted by competitive intensity in a heterogeneous market. This paper aims to determine the conditions under which opaque selling is optimal for competing service providers.Design/methodology/approachThe paper takes a Hotelling model to characterize the competition between two service providers. The authors also consider the interaction between the service providers and intermediary. Service providers act as game leaders and determine whether they should cooperate with the intermediary to introduce the opaque service.FindingsThe authors find that two competing service providers do not always benefit from opaque selling in a heterogeneous market consisting of leisure and business consumers, and the competitive intensity plays a significant role in the service providers’ decision optimization. Opaque selling allows service providers to acquire more profit in a highly competitive market or when the market contains a large proportion of leisure consumers. Otherwise, it is optimal for service providers without introducing the opaque selling.Practical implicationsThe paper examines the optimality of opaque selling for competing service providers, and provides the suggestions to optimize the service providers’ decisions.Originality/valueThe paper investigates how the service providers’ optimal decisions are impacted by competitive intensity, considering the interaction between the service providers and intermediary.