Working Paper Concept Paper Version 1 This version is not peer-reviewed

Service-Value and Nash-Equilibrium Pricing: An Axiomatic Methodology

Version 1 : Received: 15 April 2021 / Approved: 17 April 2021 / Online: 17 April 2021 (08:51:58 CEST)

How to cite: Tang, V. Service-Value and Nash-Equilibrium Pricing: An Axiomatic Methodology. Preprints 2021, 2021040455 Tang, V. Service-Value and Nash-Equilibrium Pricing: An Axiomatic Methodology. Preprints 2021, 2021040455

Abstract

We present a normative methodology, for value-pricing B2B services, using a Nash Equilibrium mechanism. Value is fundamental to any service, yet it has defied a definition. The literature is conspicuously silent on how to define value, but abounds in richly descriptive characterizations. To overcome this deficit, we focus on the financial economics of service-value. We formulate an axiomatic definition and a differential equation that embodies the idea of service-value. We specify a set of value axioms and multidisciplinary postulates that coherently form our service-value constructs. Value-pricing is challenging. It is natural that providers desire a high price and customers want a low price. Realistically, both will agree on a win-win price. To uncover this price, we specify an algorithm to reveal the Nash Equilibrium. Once agreed, it validates providers’ and customers’ commitments, and payment obligations. Service value is cocreated by both provider and customer. For a reciprocal process, its treatment is remarkably asymmetric favoring the customer. We argue that one-sided descriptions of value-in-use and value-proposition are limiting mental models. We propose the additional ideas of value-from-use and value-supposition to strengthen the conceptual symmetry of cocreation. Our work reveals a critical gap in service science, metrology. Metrology, the science of measurements, is absent from service-science. Service-value is silent on the questions of quantities, units, scales, measurement principles and instruments. We argue for a call to action for Service Metrology. We sketch a roadmap of actionable suggestions to get started.

Subject Areas

pricing services; value-pricing services; services Nash Equilibrium; value co-creation; service science; services metrology

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