Should Captive Sardines Be Compensated? Serving Customers in a Confined Zone

Many services are delivered to a (large) number of customers simultaneously within a confined zone (e.g., restaurants, resorts, trains, and airplanes). Under unexpected high demand, customers experience discomfort from two major sources: (a) the sardine effect that arises when too many customers (i.e., sardines) compete for space and service resources, and (b) the captivity effect that results from an exit cost incurred by customers who self-select to "escape" the unpleasant service. This paper investigates the optimal compensation and pricing policies under these two effects. We find that offering compensation to sardines can improve profit and social welfare. However, consumers do not benefit when compensated for the discomfort from crowding. This paper also provides insights by exploring the impact of changes in the two effects on price and profit.