Service contracts: A stochastic model

Abstract

There is a growing trend to outsource maintenance where equipment failures are rectified by an external agent under a service contract. The agent's profit is influenced by many factors - the terms of the contract, equipment reliability, and the number of customers being serviced. The paper develops a stochastic model to study the impact of these on the agent's expected profit and the agent's optimal strategies using a game theoretic formulation. (C) 2000 Elsevier Science Ltd