Service Competition with General Queueing Facilities

54 Pages Posted: 11 Jun 2006

See all articles by Gad Allon

Gad Allon

University of Pennsylvania - The Wharton School

Awi Federgruen

Columbia Business School - Decision Risk and Operations

Date Written: March 29, 2006

Abstract

In many service industries, companies compete with each other on the basis of the waiting time their customers' experience, along with the price they charge for their service. A firm's waiting time standard may either be defined in terms of the expected value or a given, for instance 95%, percentile of the steady state waiting time distribution. We investigate how a service industry's competitive behavior depends on the characteristics of the service providers' queueing systems. We provide a unifying approach to investigate various standard single stage systems covering the spectrum from M/M/1 to general G/GI/s systems, along with open Jackson networks to represent multi-stage service systems. Assuming that the capacity cost is proportional with the service rates we refer to its dependence on (i) the firm's demand rate and (ii) the waiting time standard as the capacity cost function. We show that across the above road spectrum of queueing models, the capacity cost function belongs to a specific four parameter class of function, either exactly or as a close approximation. We then characterize how this capacity cost function impacts on the equilibrium behavior in the industry. We give separate treatments to the case where the firms compete in terms of (i) prices (only) (ii) their service level or waiting time standard (only), (iii) simultaneously in terms of both prices and service levels. The firms' demand rates are given by a general system of equations of the prices and waiting time standards in the industry.

Keywords: service, competition, general, queueing, facilities

Suggested Citation

Allon, Gad and Federgruen, Awi, Service Competition with General Queueing Facilities (March 29, 2006). Available at SSRN: https://ssrn.com/abstract=907355 or http://dx.doi.org/10.2139/ssrn.907355

Gad Allon (Contact Author)

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

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