Impact of family members’ perception bias on service strategies of elder care institutions

Abstract

Family members play an important role in the decision-making process of the elderly in accepting elder care services, which inevitably influences the operational strategy of elder care institutions (ECIs). Previous literature has focused on the disagreements between the elderly and their family members, but a research gap remains in examining the effects of family members' perception bias on ECIs' decisions to outsource service and on the elder care service market in general. Our study bridges this gap by employing a game-theoretic model that incorporates monopoly and duopoly markets to explore these effects. Our findings indicate that family members' perception bias for ECIs' services negatively impacts ECIs' prices, demand, and profit. Moreover, we find that in the monopoly market, an ECI should adopt the outsourcing strategy to reduce losses if family members' perception bias is higher. In the duopoly market, when family members' perception bias is higher, if one ECI adopts the outsourcing strategy, then the other ECI should opt for the self-providing strategy, and vice versa. Furthermore, we observe that a higher perception bias decreases family surplus and social welfare in the monopoly market. However, it may sometimes benefit family surplus and social welfare in the duopoly market. Our results offer insightful takeaways for ECIs' operational strategies and policymakers’ welfare policies in the elder care service market.