Purpose: This paper aims at defining the value creation mechanism and income distribution\udstrategies of product-service integration in order to promote product-service integration of a\udfirm.\udDesign/methodology/approach: This paper conducts researches quantitatively on the\udcoordination mechanism of product-service integration by using game theory, and uses the\udmethods of Shapley value and Equal growth rate to further discuss income distribution\udstrategies of product-service integration.\udFindings: Product-service integration increases the total income of a firm and the added value\udof the income δπ decreases as the unit price demand variation coefficient of products and\udservices E increases, while decreases as the marginal cost of products βP increases, decreases as\udthe marginal cost of services βS increases. Moreover, th e findings suggest that both income\uddistribution strategies of product-service integration based on Shapley value method and Equal\udgrowth rate method can make the product department and service department of a firm winwin\udand realize the Pareto improvement. The choice of what kind of distribution strategy to\udcoordinate the actions between departments depends on the department playing dominant role\udin the firm. Generally speaking, for a firm at the center of market, when the product\uddepartment is the main contributor to firm income, the service department will choose the\udincome distribution strategy of product-service integration based on Shapley value method;\udwhen the service department is the main contributor to firm income, the service departmentwill choose the income distribution strategy of product-service integration based on Equal\udgrowth rate method.\udResearch limitations/implications: This paper makes some strict assumptions such as\udcomplete information, risk neutral, linear cost function and so on and the discussion is limited\udto the simple relationship between product department and service department.\udPractical implications: Product-service integration enables a firm to improve its total income.\udA firm should take appropriate income distribution strategies in order to promote the its\udproduct-service integration.\udOriginality/value: This paper introduces game theory into the research of product-service\udintegration for the first time and it has reached some valuable conclusions, which has opened\udup a new field of study in the product-service area.
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