Pricing and Delivery-Time Performance in a Competitive Environment
AbstractWe 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.
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Bibliographic InfoArticle provided by INFORMS in its journal Management Science.
Volume (Year): 40 (1994)
Issue (Month): 5 (May)
two-server queues; time-sensitive customers; pricing; delivery-time competition; Nash equilibrium;
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