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: | Li Lode, Yew Sing Lee |
Keywords: | marketing, queues: applications, game theory |
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.