Abstract: Based on a product service supply chain consisting of a manufacturer that provides the product, a service provider that provides integration of product and service and a strategic consumer, and in consideration of the fact that higher service quality will lead consumers to make different decision on purchasing, a two-period dynamic game model is built to study the optimal two-period dynamic pricing of the manufacturer and the service provider, and the optimal service quality decision of the service provider. We analyze the value for the service provider to improve service quality, and investigate the impact of service value proportion on two-period equilibrium decision and improvement of service quality value for the service provider. The following results are obtained: the improvement of service quality for the service provider will relieve the consumer’s strategic behavior, increase the profit of the manufacturer and the service provider, and improve consumer surplus and social welfare; the high service value proportion can improve the service quality, increase the profit of the supply chain participants, consumer surplus and social welfare, and moreover, broaden the gap between the profit of the supply chain participants and social welfare no matter whether the service provider decides to or not to improve the service quality.

Key words: consumer’s strategic behavior, product service supply chain, dynamic pricing, service quality, consumer surplus and social welfare