Competitiveness of Servitization with New Transaction Base

Abstract Servitization is an innovative business model that sell the use of a product instead of the product itself. It has been a popular business model in various manufacturing sectors in recent years. This paper investigates the competitiveness of servitization in a duopoly market. There are two manufacturing firms, one is a traditional firm who sells the product itself, the other is a servitized firm who not only offers product sales, but also sells the use of the product. Two firms first decide the product efficiency, then they make pricing decision. After observing the aforementioned firms’ decisions, a customer can choose to remain inactive, participate in the servitization option, or purchase the product of traditional or servitized firms through the sales option. We analyse two firms’ decisions and customers’ choices under a three-stage dynamic game framework. The optimal decisions of both two firms and customers are presented. The conclusion and insights of these results will be conducted in the future.