Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review
Competing on price, speed, and reliability: How does bounded rationality matter? / Marand, Ata Jalili; Li, Hongyan Jenny; Thorstenson, Anders.
In: Journal of the Operational Research Society, Vol. 72, No. 9, 2021, p. 2059-2072.Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaper › Journal article › Research › peer-review
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TY - JOUR
T1 - Competing on price, speed, and reliability:
T2 - How does bounded rationality matter?
AU - Marand, Ata Jalili
AU - Li, Hongyan Jenny
AU - Thorstenson, Anders
PY - 2021
Y1 - 2021
N2 - A firm’s delivery performance may have significant impact on the satisfaction and purchase behaviour of its customers. Empirical evidence has shown that customers are willing to pay a higher price for a faster and more reliable service. In this study, we address the interactions between the price, promised delivery time, and delivery-reliability level in a competitive setting. We model the problem as a competition among an arbitrary number of profit-maximizing firms facing boundedly rational customers who can choose to buy the service from one of the firms or balk. We prove the existence of a unique Nash equilibrium and propose a simple iterative algorithm that converges to the equilibrium. Furthermore, we compare our results with those in the existing literature and report interesting managerial insights. Our results suggest that having a clear understanding of customers’ bounded rationality level is crucial for businesses to determine their optimal decisions and position in the market both in monopolistic and competitive settings.
AB - A firm’s delivery performance may have significant impact on the satisfaction and purchase behaviour of its customers. Empirical evidence has shown that customers are willing to pay a higher price for a faster and more reliable service. In this study, we address the interactions between the price, promised delivery time, and delivery-reliability level in a competitive setting. We model the problem as a competition among an arbitrary number of profit-maximizing firms facing boundedly rational customers who can choose to buy the service from one of the firms or balk. We prove the existence of a unique Nash equilibrium and propose a simple iterative algorithm that converges to the equilibrium. Furthermore, we compare our results with those in the existing literature and report interesting managerial insights. Our results suggest that having a clear understanding of customers’ bounded rationality level is crucial for businesses to determine their optimal decisions and position in the market both in monopolistic and competitive settings.
KW - Delivery reliability
KW - Competition
KW - Bounded rationality
KW - Queueing
KW - Pricing
KW - Game theory
KW - bounded rationality
KW - queuing
KW - game theory
KW - competition
KW - pricing
KW - MANAGEMENT
KW - INTERNET
KW - PERFORMANCE
KW - TIME
KW - MODEL
KW - DELIVERY
KW - DEMAND
KW - IMPACT
KW - CUSTOMERS
KW - SERVICE
U2 - 10.1080/01605682.2020.1759384
DO - 10.1080/01605682.2020.1759384
M3 - Journal article
VL - 72
SP - 2059
EP - 2072
JO - Journal of the Operational Research Society
JF - Journal of the Operational Research Society
SN - 0160-5682
IS - 9
ER -