Promised Delivery Time and Capacity Games in Time-Based Competition
We investigate firms' competitive behaviors in industries where customers are sensitive to both promised delivery time (PDT) and quality of service (QoS) measured by the on-time delivery rate. To study the competition in PDT at the marketing level, we construct an oligopoly game with an external QoS requirement. We show that there exists a unique Nash equilibrium, and the equilibrium QoS exhibits a switching surface structure with respect to capacities. To study the competition in capacity at the strategic level, we construct a two-stage game in which the firms compete in terms of their capacities in stage 1 and in terms of PDT in stage 2. We show the existence of two different types of pure strategy equilibria and characterize them. This study provides the following insights: an index of time-based competitive advantage (ITCA) and the first-mover advantage determine the positions of the firms in time-based competition; either the well-known prisoner's dilemma or off-equilibrium behaviors due to different preferences for equilibria (when multiple equilibria exist) may lead the firms to overinvest in capacity, but no one may gain a competitive advantage; a uniform improvement in internal efficiency (i.e., a uniform capacity cost reduction) may harm everyone; quality differentiation (i.e., going beyond the QoS benchmark) plays a dual role in time-based competition, either helping a firm with a larger ITCA to compete more effectively, or helping a firm possibly with a smaller ITCA to preempt competitors and protect its market advantage. This paper was accepted by Paul H. Zipkin, operations and supply chain management.
Volume (Year): 57 (2011)
Issue (Month): 3 (March)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
References listed on IDEAS
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.:
- 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.
- Izak Duenyas & Wallace J. Hopp, 1995. "Quoting Customer Lead Times," Management Science, INFORMS, vol. 41(1), pages 43-57, January.
- Slotnick, Susan A. & Sobel, Matthew J., 2005. "Manufacturing lead-time rules: Customer retention versus tardiness costs," European Journal of Operational Research, Elsevier, vol. 163(3), pages 825-856, June.
- Naor, P, 1969. "The Regulation of Queue Size by Levying Tolls," Econometrica, Econometric Society, vol. 37(1), pages 15-24, January.
- Kut C. So, 2000. "Price and Time Competition for Service Delivery," Manufacturing & Service Operations Management, INFORMS, vol. 2(4), pages 392-409, April.
- Olivier Armantier & Oliver Richard, 2008. "Domestic airline alliances and consumer welfare," RAND Journal of Economics, RAND Corporation, vol. 39(3), pages 875-904.
- Jan A. Van Mieghem, 2000. "Price and Service Discrimination in Queuing Systems: Incentive Compatibility of Gc\mu Scheduling," Management Science, INFORMS, vol. 46(9), pages 1249-1267, September.
- 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.
- Berry, Steven T, 1992. "Estimation of a Model of Entry in the Airline Industry," Econometrica, Econometric Society, vol. 60(4), pages 889-917, July.
- Sanjeev Dewan & Haim Mendelson, 1990. "User Delay Costs and Internal Pricing for a Service Facility," Management Science, INFORMS, vol. 36(12), pages 1502-1517, December.
- Piyush Kumar & Manohar U. Kalwani & Maqbool Dada, 1997. "The Impact of Waiting Time Guarantees on Customers' Waiting Experiences," Marketing Science, INFORMS, vol. 16(4), pages 295-314.
- Gérard P. Cachon & Fuqiang Zhang, 2007. "Obtaining Fast Service in a Queueing System via Performance-Based Allocation of Demand," Management Science, INFORMS, vol. 53(3), pages 408-420, March.
- Lawrence M. Wein, 1991. "Due-Date Setting and Priority Sequencing in a Multiclass M/G/1 Queue," Management Science, INFORMS, vol. 37(7), pages 834-850, July.
- Liming Liu & Mahmut Parlar & Stuart X. Zhu, 2007. "Pricing and Lead Time Decisions in Decentralized Supply Chains," Management Science, INFORMS, vol. 53(5), pages 713-725, May.
- Suman Basuroy & Dung Nguyen, 1998. "Multinomial Logit Market Share Models: Equilibrium Characteristics and Strategic Implications," Management Science, INFORMS, vol. 44(10), pages 1396-1408, October.
- Tamer Boyaci & Saibal Ray, 2003. "Product Differentiation and Capacity Cost Interaction in Time and Price Sensitive Markets," Manufacturing & Service Operations Management, INFORMS, vol. 5(1), pages 18-36, May.
- 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.
- Teck H. Ho & Yu-Sheng Zheng, 2004. "Setting Customer Expectation in Service Delivery: An Integrated Marketing-Operations Perspective," Management Science, INFORMS, vol. 50(4), pages 479-488, April.
- Lode Li, 1992. "The Role of Inventory in Delivery-Time Competition," Management Science, INFORMS, vol. 38(2), pages 182-197, February.
- Steven T. Berry, 1994. "Estimating Discrete-Choice Models of Product Differentiation," RAND Journal of Economics, The RAND Corporation, vol. 25(2), pages 242-262, Summer.
- Candace Arai Yano, 1987. "Setting Planned Leadtimes in Serial Production Systems with Tardiness Costs," Management Science, INFORMS, vol. 33(1), pages 95-106, January.
- Jing-Sheng Song & Candace A. Yano & Panupol Lerssrisuriya, 2000. "Contract Assembly: Dealing with Combined Supply Lead Time and Demand Quantity Uncertainty," Manufacturing & Service Operations Management, INFORMS, vol. 2(3), pages 287-296, July.
When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:57:y:2011:i:3:p:599-610. 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: (Mirko Janc)
If references are entirely missing, you can add them using this form.