On service degrade at a discount: Capacity, demand pooling, and optimal discounting

► We study capacity investment and operational strategies of a firm providing two-class services. ► We formulate the problem as a one-period, two-stage stochastic problem. ► We introduce an operational strategy called degrade-at-a-discount. ► We analyze how to set up the optimal capacity and the optimal discount. ► We show the benefits of the degrade-at-a-discount strategy.