Asymmetric Information and Economies of Scale in Service Contracting

We consider a contracting problem in which a …rm outsources its call center operations to a service provider. The outsourcing …rm (which we term the originator) has private information regarding the rate of incoming calls. The per-call revenue (or margin) earned by the …rm and the service level depend on the sta¢ ng decisions by the service provider. Initially, we restrict attention to pay-per-call contracts under which the parties contract on a service level and a per-call fee. The service provider is modeled as a multi-server queue with a Poisson arrival process, exponentially distributed service times and customer abandonment. We assume that the service provider’s queue is large enough such that the economically sensible mode of operation for sta¢ ng it is the Quality-and-E¢ ciency-Driven regime, which allows tractable approximations of various performance metrics. We …rst consider a screening scenario with the service provider o¤ering a contract to the originator. Due to the statistical economies of scale phenomenon observed in queueing systems, the allocation of the originator with higher arrival rate is distorted, which reverses the typical “e¢ ciency at top”result present in the literature on monopolist screening. We then consider the alternative scenario with the originator o¤ering a contract to signal her information and show that the service level of the high volume …rm is again distorted. The introduction of a …xed payment ameliorates distortions from …rst-best and may eliminate them.