Pricing and delivery-time performance in a competitive environment

Pricing and delivery-time performance in a competitive environment

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Article ID: iaor19942089
Country: United States
Volume: 40
Issue: 5
Start Page Number: 633
End Page Number: 646
Publication Date: May 1994
Journal: Management Science
Authors: ,
Keywords: marketing, queues: applications, game theory
Abstract:

The authors 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 competitive servers. The authors 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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