Service Time Competition

Ivan Png and David Reitman

RAND Journal of Economics, 1994, vol. 25, issue 4, 619-634

Abstract: How can two physically identical gasoline stations differentiate themselves? In this article we develop and test a model of service time competition: some stations set higher prices and thereby offer shorter queues, whereas others offer lower price and longer queues. We find that retail demand is sensitive to service time: customers are, on average, willing to pay about 1% more for a 6% reduction in congestion. Consistent with the service time hypothesis, prices are more dispersed at stations facing more direct competition.

Date: 1994
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