Search Among Queues Under Quality Differentiation

Management Science, Forthcoming

58 Pages Posted: 22 Oct 2015 Last revised: 1 May 2018

See all articles by Luyi Yang

Luyi Yang

University of California, Berkeley - Haas School of Business

Laurens Debo

Dartmouth College - Tuck School of Business

Varun Gupta

University of Chicago - Booth School of Business

Date Written: April 30, 2018

Abstract

Customers looking for service providers often face search frictions and have to trade off quality and availability. To understand customers' search behavior when they are confronted with a large collection of vertically differentiated, congested service providers, we build a model in which arriving customers conduct costly sequential search to resolve uncertainty about service providers' quality and queue length and select one to join by optimal stopping rules. Customers search due, in part, to variations in waiting time across service providers, which, in turn, are determined by the search behavior of customers. Thus, an equilibrium emerges. We characterize customers' equilibrium search/join behavior in a mean field model as the number of service providers grows large. We find that reducing either the search cost or customer arrival rate may increase the average waiting time in the system as customers substitute toward high quality service providers. Moreover, with lower search costs, the improved quality obtained by customers may not make up for the prolonged wait, therefore degrading the average search reward, and, more importantly, decreasing customer welfare; when customers search, their welfare can even be lower than if they are not allowed to search at all.

Keywords: queuing games, search, waiting time, quality substitution, customer welfare

Suggested Citation

Yang, Luyi and Debo, Laurens and Gupta, Varun, Search Among Queues Under Quality Differentiation (April 30, 2018). Management Science, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2677990 or http://dx.doi.org/10.2139/ssrn.2677990

Luyi Yang

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Laurens Debo

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Varun Gupta (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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