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Time-based competition with benchmark effects

Publication ,  Journal Article
Yang, L; De Véricourt, F; Sun, P
Published in: Manufacturing and Service Operations Management
December 1, 2014

We consider a duopoly where firms compete on waiting times in the presence of an industry benchmark. The demand captured by a firm depends on the gap between the firm's offer and the benchmark. We refer to the benchmark effect as the impact of this gap on demand. The formation of the benchmark is endogenous and depends on both firms' choices. When the benchmark is equal to the shorter of the two offered delays, we characterize the unique Pareto optimal Nash equilibrium. Our analysis reveals a stickiness effect in which firms equate their delays at the equilibrium when the benchmark effect is sufficiently strong. When the benchmark corresponds to a weighted average of the two offered delays, we show the existence of a pure Nash equilibrium. In this case, we reveal a reversal effect, in which the market leader, i.e., the firm that offers a shorter delay, becomes the follower when the benchmark effect is sufficiently strong. In both cases, we show that customers' equilibrium waiting times are shorter with the benchmark effect than without it. Our models also capture customers' loss aversion, which, in our setting, states that demand is more sensitive to the gap between the delay and the benchmark when the delay is longer than the benchmark (loss) than when it is shorter (gain). We characterize the impact of this loss aversion on the equilibrium in both settings. Finally, we show numerically that the stickiness and reversal effects still exist when firms also compete on price. © 2014 INFORMS.

Duke Scholars

Published In

Manufacturing and Service Operations Management

DOI

EISSN

1526-5498

ISSN

1523-4614

Publication Date

December 1, 2014

Volume

16

Issue

1

Start / End Page

119 / 132

Related Subject Headings

  • Operations Research
  • 4901 Applied mathematics
  • 3509 Transportation, logistics and supply chains
  • 1505 Marketing
  • 1503 Business and Management
  • 0102 Applied Mathematics
 

Citation

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ICMJE
MLA
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Yang, L., De Véricourt, F., & Sun, P. (2014). Time-based competition with benchmark effects. Manufacturing and Service Operations Management, 16(1), 119–132. https://doi.org/10.1287/msom.2013.0462
Yang, L., F. De Véricourt, and P. Sun. “Time-based competition with benchmark effects.” Manufacturing and Service Operations Management 16, no. 1 (December 1, 2014): 119–32. https://doi.org/10.1287/msom.2013.0462.
Yang L, De Véricourt F, Sun P. Time-based competition with benchmark effects. Manufacturing and Service Operations Management. 2014 Dec 1;16(1):119–32.
Yang, L., et al. “Time-based competition with benchmark effects.” Manufacturing and Service Operations Management, vol. 16, no. 1, Dec. 2014, pp. 119–32. Scopus, doi:10.1287/msom.2013.0462.
Yang L, De Véricourt F, Sun P. Time-based competition with benchmark effects. Manufacturing and Service Operations Management. 2014 Dec 1;16(1):119–132.

Published In

Manufacturing and Service Operations Management

DOI

EISSN

1526-5498

ISSN

1523-4614

Publication Date

December 1, 2014

Volume

16

Issue

1

Start / End Page

119 / 132

Related Subject Headings

  • Operations Research
  • 4901 Applied mathematics
  • 3509 Transportation, logistics and supply chains
  • 1505 Marketing
  • 1503 Business and Management
  • 0102 Applied Mathematics