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Pricing and Delivery-Time Performance in a Competitive Environment

Author

Listed:
  • 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)

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.

Suggested Citation

  • Lode Li & Yew Sing Lee, 1994. "Pricing and Delivery-Time Performance in a Competitive Environment," Management Science, INFORMS, vol. 40(5), pages 633-646, May.
    • Handle: RePEc:inm:ormnsc:v:40:y:1994:i:5:p:633-646
    DOI: 10.1287/mnsc.40.5.633
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