Search Among Queues Under Quality Differentiation

Luyi Yang (), Laurens G. Debo () and Varun Gupta ()
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Luyi Yang: Carey Business School, Johns Hopkins University, Baltimore, Maryland 21202
Laurens G. Debo: Tuck School of Business, Dartmouth College, Hanover, New Hampshire 03755
Varun Gupta: Booth School of Business, The University of Chicago, Chicago, Illinois 60637

Management Science, 2019, vol. 65, issue 8, 3605-3623

Abstract: Customers looking for service providers often face search frictions and have to trade off quality and availability. To understand customers’ search behavior when they are confronted with a large collection of vertically differentiated, congested service providers, we build a model in which arriving customers conduct a costly sequential search to resolve uncertainty about service providers’ quality and queue length and select one to join by optimal stopping rules. Customers search, in part, because of variations in waiting time across service providers, which, in turn, is determined by the search behavior of customers. Thus, an equilibrium emerges. We characterize customers’ equilibrium search/join behavior in a mean field model as the number of service providers grows large. We find that reducing either the search cost or customer arrival rate may increase the average waiting time in the system as customers substitute toward high-quality service providers. Moreover, with lower search costs, the improved quality obtained by customers may not make up for the prolonged wait, therefore degrading the average search reward and, more importantly, decreasing customer welfare; when customers search, their welfare can even be lower than if they are not allowed to search at all.

Keywords: queueing games; search; waiting time; quality substitution; customer welfare (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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