Strategic behavior in a service industry
AbstractA model of service duopoly is formulated, where the arrival of customers and their service time in the firm are stochastic. The firms first choose the service capacity, and given the capacity they then choose the price in a Bertrand competition. Capacity choices have a negative externality on the competitor, since increased capacity in one firm decreases its expected full price (price plus cost of waiting) and leads to a flow of customers from the other firm. If the firms choose capacities strategically, it is optimal to underinvest compared to the non-strategic case, but this result may arise in different ways. By underinvesting the firms commit themselves to longer queues (lower quality) to relax price competition. Copyright © 2002 John Wiley & Sons, Ltd.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.
Volume (Year): 23 (2002)
Issue (Month): 2 ()
Contact details of provider:
Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ehud Kalai, 1990. "Optimal Service Speeds in a Competitive Environment," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 901, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Luski, Israel, 1976. "On Partial Equilibrium in a Queuing System with Two Servers," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 43(3), pages 519-25, October.
- De Vany, Arthur S & Saving, Thomas R, 1983. "The Economics of Quality," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(6), pages 979-1000, December.
- Richard C. Levin & Peter C. Reiss, 1988. "Cost-Reducing and Demand-Creating R&D with Spillovers," RAND Journal of Economics, The RAND Corporation, vol. 19(4), pages 538-556, Winter.
- Levhari, David & Luski, Israel, 1978. "Duopoly pricing and waiting lines," European Economic Review, Elsevier, Elsevier, vol. 11(1), pages 17-35, February.
- Shaler Stidham, 1992. "Pricing and Capacity Decisions for a Service Facility: Stability and Multiple Local Optima," Management Science, INFORMS, INFORMS, vol. 38(8), pages 1121-1139, August.
- Reitman, David, 1991. "Endogenous Quality Differentiation in Congested Markets," Journal of Industrial Economics, Wiley Blackwell, Wiley Blackwell, vol. 39(6), pages 621-47, December.
- De Bondt, Raymond & Veugelers, Reinhilde, 1991. "Strategic investment with spillovers," European Journal of Political Economy, Elsevier, Elsevier, vol. 7(3), pages 345-366, October.
- Kamien, Morton I & Muller, Eitan & Zang, Israel, 1992. "Research Joint Ventures and R&D Cartels," American Economic Review, American Economic Association, American Economic Association, vol. 82(5), pages 1293-306, December.
- Dixit, Avinash K, 1986. "Comparative Statics for Oligopoly," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 107-22, February.
- Davidson, Carl, 1988. "Equilibrium in Servicing Industries: An Economic Application of Queuing Theory," The Journal of Business, University of Chicago Press, University of Chicago Press, vol. 61(3), pages 347-67, July.
- Lode Li & Yew Sing Lee, 1994. "Pricing and Delivery-Time Performance in a Competitive Environment," Management Science, INFORMS, INFORMS, vol. 40(5), pages 633-646, May.
- Fershtman, Chaim & Gandal, Neil, 1994.
International Journal of Industrial Organization, Elsevier,
Elsevier, vol. 12(2), pages 141-154, June.
- Raymond Deneckere & James Peck, 1995.
"Competition Over Price and Service Rate When Demand is Stochastic: A Strategic Analysis,"
RAND Journal of Economics,
The RAND Corporation, vol. 26(1), pages 148-162, Spring.
- Raymond Deneckere & James Peck, 1992. "Competition over Price and Service Rate when Demand is Stochastic: A Strategic Analysis," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 990, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.