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Pricing and Delivery-Time Performance in a Competitive Environment

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Author Info

  • Lode Li

    (Yale School of Management, Box 208200, New Haven, Connecticut 06520-8200)

  • Yew Sing Lee

    (Department of Information and Decision Sciences, The University of Illinois at Chicago, Chicago, Illinois 60607)

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    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.

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    File URL: http://dx.doi.org/10.1287/mnsc.40.5.633
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    Bibliographic Info

    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 40 (1994)
    Issue (Month): 5 (May)
    Pages: 633-646

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    Handle: RePEc:inm:ormnsc:v:40:y:1994:i:5:p:633-646

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    Related research

    Keywords: two-server queues; time-sensitive customers; pricing; delivery-time competition; Nash equilibrium;

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    Cited by:
    1. Isabel Parra-Frutos, 2010. "A queuing-based model for optimal dimension of service firms," SERIEs, Spanish Economic Association, vol. 1(4), pages 459-474, September.
    2. So, Kut C. & Song, Jing-Sheng, 1998. "Price, delivery time guarantees and capacity selection," European Journal of Operational Research, Elsevier, vol. 111(1), pages 28-49, November.
    3. Bertrand, J. W. M. & van Ooijen, H. P. G., 2000. "Customer order lead times for production based on lead time and tardiness costs," International Journal of Production Economics, Elsevier, vol. 64(1-3), pages 257-265, March.
    4. Elahi, Ehsan, 2013. "Outsourcing through competition: What is the best competition parameter?," International Journal of Production Economics, Elsevier, vol. 144(1), pages 370-382.
    5. Modarres, Mohammad & Sharifyazdi, Mehdi, 2009. "Revenue management approach to stochastic capacity allocation problem," European Journal of Operational Research, Elsevier, vol. 192(2), pages 442-459, January.
    6. Pekka Ilmakunnas, 2002. "Strategic behavior in a service industry," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 23(2), pages 69-82.
    7. Mei Xue & Patrick T. Harker, 2003. "Service Co-Production, Customer Efficiency and Market Competition," Center for Financial Institutions Working Papers 03-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
    8. Kuik, Roelof & Tielemans, Peter F. J., 1998. "Analysis of expected queueing delays for decision making in production planning," European Journal of Operational Research, Elsevier, vol. 110(3), pages 658-681, November.
    9. Tang, Christopher S., 2010. "A review of marketing-operations interface models: From co-existence to coordination and collaboration," International Journal of Production Economics, Elsevier, vol. 125(1), pages 22-40, May.
    10. ElHafsi, Mohsen, 2000. "An operational decision model for lead-time and price quotation in congested manufacturing systems," European Journal of Operational Research, Elsevier, vol. 126(2), pages 355-370, October.
    11. Easton, Fred F. & Moodie, Douglas R., 1999. "Pricing and lead time decisions for make-to-order firms with contingent orders," European Journal of Operational Research, Elsevier, vol. 116(2), pages 305-318, July.
    12. Armony, Mor & Haviv, Moshe, 2003. "Price and delay competition between two service providers," European Journal of Operational Research, Elsevier, vol. 147(1), pages 32-50, May.
    13. Altendorfer, Klaus & Jodlbauer, Herbert, 2011. "Which utilization and service level lead to the maximum EVA?," International Journal of Production Economics, Elsevier, vol. 130(1), pages 16-26, March.
    14. Kuik, Roelof & Tielemans, Peter F. J., 2004. "Expected time in system analysis of a single-machine multi-item processing center," European Journal of Operational Research, Elsevier, vol. 156(2), pages 287-304, July.

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