IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v38y1992i8p1154-1163.html
   My bibliography  Save this article

Optimal Service Speeds in a Competitive Environment

Author

Listed:
  • Ehud Kalai

    (Department of Managerial Economics and Decision Science, J. L. Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois 60208)

  • Morton I. Kamien

    (Department of Managerial Economics and Decision Science, J. L. Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois 60208)

  • Michael Rubinovitch

    (Faculty of Industrial Engineering and Management, Technion---Israel Institute of Technology, Haifa 32000, Israel)

Abstract

This is a study of the economic behavior of vendors of service in competition. A simple model with two competing exponential servers and Poisson arrivals is considered. Each server is free to choose his own service rate at a cost (per time unit) that is strictly convex and increasing. There is a fixed reward to a server for each customer that he serves. The model is designed to study one specific aspect of competition, namely, competition in speed of service as a means for capturing a larger market share in order to maximize long-run expected profit per time unit. A two-person strategic game is formulated and its solutions are characterized. Depending on the revenue per customer served and on the cost of maintaining service rates, the following three situations may arise: (i) a unique symmetric strategic (Nash) equilibrium in which expected waiting time is infinite; (ii) a unique symmetric strategic equilibrium in which expected waiting time is finite; and (iii) several, nonsymmetric strategic equilibria with infinite expected waiting time. An explicit expression for the market share of each server as a function of the service rates of the two servers is also given.

Suggested Citation

  • Ehud Kalai & Morton I. Kamien & Michael Rubinovitch, 1992. "Optimal Service Speeds in a Competitive Environment," Management Science, INFORMS, vol. 38(8), pages 1154-1163, August.
  • Handle: RePEc:inm:ormnsc:v:38:y:1992:i:8:p:1154-1163
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.38.8.1154
    Download Restriction: no

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:38:y:1992:i:8:p:1154-1163. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Matthew Walls). General contact details of provider: http://edirc.repec.org/data/inforea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.