Pricing and Delivery-Time Performance in a Competitive Environment

Lode Li and Yew Sing Lee
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Yew Sing Lee: Department of Information and Decision Sciences, The University of Illinois at Chicago, Chicago, Illinois 60607

Management Science, 1994, vol. 40, issue 5, 633-646

Abstract: We present a model of market competition in which customer preferences are over not only price and quality but also delivery speed. This allows a study of market demand and firms' decisions on price, quality, technology and responsiveness in a competitive environment. When demand arises, a customer chooses the firm that maximizes its expected utility of price, quality and response time. The demand function for each firm is derived by analyzing a queueing system with competing servers. We then study price competition among firms with differentiated processing rates. In the equilibrium, the firm with a higher processing rate always enjoys a price premium, and, further, enjoys a larger market share when its opponent also has adequate processing rate to serve all the customers alone.

Keywords: two-server queues; time-sensitive customers; pricing; delivery-time competition; Nash equilibrium (search for similar items in EconPapers)
Date: 1994
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:40:y:1994:i:5:p:633-646

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