Integrated Optimization of Pricing, Maintenance Strategies, and Market Coverage: A Bargaining Model for Full-Service Contracts With Loss-Averse Participants

As industries increasingly outsource their Maintenance, Repair, and Overhaul (MRO) programs to third-party service providers, Original Equipment Manufacturers (OEMs) seek to expand their market share by providing comprehensive MRO packages along with the original products at a bundled price. This study introduces a bargaining model that jointly optimizes pricing, maintenance policies, and OEM's market coverage, considering participants' gain/loss behaviors within the Full-Service Product System (FSPS) contracts framework. We first provide closed-form analysis for various scenarios in a one-on-one bargaining negotiation, resulting in significant computational efficiency and insightful managerial implications. It also enables us to expand the problem to multiple contracts and develop an algorithm that simultaneously optimizes client density, profitability, pricing and MRO policies. The findings indicate that when players' profits fall short of their reference point, a more loss-averse approach results in increased personal profit and less favorable outcomes for the opponent. We further enrich our findings by conducting a sensitivity analysis of the parameters affecting the pricing, MRO policies, and market coverage.