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Competition in service industries

Gad Allon, 2006
Faculty Advisor: Awi Federgruen
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This dissertation addresses competition in service industries. Increasingly, firms in service industries differentiate themselves on the basis of the waiting time their customers experience, along with their price levels and other service attributes (location, quality of service etc.). The dependence of waiting times on demand volumes and capacity levels, in turn, depends in a fundamental way on the operational characteristics of the service facilities, as queueing theory has taught us.

When customers select a specific firm, the selection process amounts to a tradeoff among three categories of service attributes: (1) the price; (2) the waiting time standard; (3) all other attributes. In the second chapter of this dissertation entitled 'Competition in Service Industries', we analyze a general market for an industry of competing service providers. Other than through intrinsic and unalterable service characteristics, firms differentiate themselves in the market in terms of their price levels and the waiting time their customers experience. We first characterize the equilibrium behavior in three competition models: Simultaneous Competition, where firms select their prices and service levels simultaneously, Price First, where firms first select their prices, and then their service levels (after observing the pricing decisions made by the rest of the firms), and Service Level First, where the order of the decisions is reversed. We then rank and compare the resulting prices and service levels generated by each of the three competition models.

In the third chapter of this dissertation entitled 'Service Competition with General Queueing Facilities', 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 multistage service systems.

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