Competition in Service Industries

We analyze a general market for an industry of competing service facilities. Firms differentiate themselves by their price levels and the waiting time their customers experience, as well as different attributes not determined directly through competition. Our model therefore assumes that the expected demand experienced by a given firm may depend on all of the industry’s price levels as well as a (steady state) waiting time standard, which each of the firms announces and commits itself to by proper adjustment of its capacity level. We focus primarily on a separable specification, which, in addition is linear in the prices. (Alternative non-separable or non-linear specifications are discussed in the concluding section.) We define a firm’s service level as the difference between an upper bound benchmark for the waiting time standard (w) and the firm’s actual waiting time standard. Different types of competition and resulting equilibrium behavior may arise, depending on t...

• Type: Journal
• Year: 2007
• Where: IOR
• Authors: Gad Allon, Awi Federgruen
• Keywords: IOR 2007, Price Levels, Service Facilities, Time Standards