How Much is a Reduction of Your Customers’ Wait Worth? An Empirical Study of the Fast-Food Drive-Thru Industry Based on Structural Estimation Methods

Manufacturing & Service Operations Management 2011 13:4, 489-507

20 Pages Posted: 8 Mar 2014

See all articles by Gad Allon

Gad Allon

University of Pennsylvania - The Wharton School

Awi Federgruen

Columbia Business School - Decision Risk and Operations

Margaret P. Pierson

Independent

Date Written: September 2, 2011

Abstract

In many service industries, companies compete with each other on the basis of the waiting time their customers experience, along with other strategic instruments such as the price they charge for their service. The objective of this paper is to conduct an empirical study of an important industry to measure to what extent waiting time performance impacts different firms’ market shares and price decisions. We report on a large-scale empirical industrial organization study in which the demand equations for fast-food drive-thru restaurants in Cook County are estimated based on so-called structural estimation methods. Our results confirm the belief expressed by industry experts, that in the fast-food drive-thru industry customers trade off price and waiting time. More interestingly, our estimates indicate that consumers attribute a very high cost to the time they spend waiting.

Keywords: service competition, structural estimation, operations marketing interface, choice models, queueing

Suggested Citation

Allon, Gad and Federgruen, Awi and Pierson, Margaret P., How Much is a Reduction of Your Customers’ Wait Worth? An Empirical Study of the Fast-Food Drive-Thru Industry Based on Structural Estimation Methods (September 2, 2011). Manufacturing & Service Operations Management 2011 13:4, 489-507. Available at SSRN: https://ssrn.com/abstract=2405556

Gad Allon

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Awi Federgruen

Columbia Business School - Decision Risk and Operations ( email )

New York, NY
United States

Margaret P. Pierson (Contact Author)

Independent

No Address Available
United States

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