 Competing on price, speed, and reliability: How does bounded rationality matter?Ata Jalili Marand, Hongyan Li and Anders Thorstenson Journal of the Operational Research Society, 2021, vol. 72, issue 9, 2059-2072 Abstract: A firm’s delivery performance may have significant impact on the satisfaction and purchase behaviour of its customers. Empirical evidence has shown that customers are willing to pay a higher price for a faster and more reliable service. In this study, we address the interactions between the price, promised delivery time, and delivery-reliability level in a competitive setting. We model the problem as a competition among an arbitrary number of profit-maximizing firms facing boundedly rational customers who can choose to buy the service from one of the firms or balk. We prove the existence of a unique Nash equilibrium and propose a simple iterative algorithm that converges to the equilibrium. Furthermore, we compare our results with those in the existing literature and report interesting managerial insights. Our results suggest that having a clear understanding of customers’ bounded rationality level is crucial for businesses to determine their optimal decisions and position in the market both in monopolistic and competitive settings. Date: 2021 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:tjorxx:v:72:y:2021:i:9:p:2059-2072 Ordering information: This journal article can be ordered from DOI: 10.1080/01605682.2020.1759384 Access Statistics for this article Journal of the Operational Research Society is currently edited by Tom Archibald More articles in Journal of the Operational Research Society from Taylor & Francis Journals |
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