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Market sharing dynamics between two service providers

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  • Gallay, Olivier
  • Hongler, Max-Olivier
Abstract
We study the market partition between two distinct firms that deliver services to waiting time sensitive customers. In our model, the incoming customers select a firm on the basis of its posted price, the expected waiting time and its brand. More specifically, we quantify by a cost any departure from the ideal brand expected by each incoming customer. Considering that the two underlying queueing processes operate under high traffic regimes, we analyze the market sharing dynamics by using a diffusion process. As a function of control parameters, such as the waiting and brand departure costs or the incoming traffic intensity, we are able to analytically characterize a transition between an Hotelling-like regime (dominated by brand considerations) and a deadline type regime (dominated by waiting time considerations). The market sharing dynamics is described by the time evolution of a boundary point, which time evolution belongs to the class of noise-induced phase transitions, so far widely discussed in physics, chemistry and biology. Explicit illustrations for both symmetric (i.e. identical servers) and asymmetric cases are worked out.

Suggested Citation

  • Gallay, Olivier & Hongler, Max-Olivier, 2008. "Market sharing dynamics between two service providers," European Journal of Operational Research, Elsevier, vol. 190(1), pages 241-254, October.
    • Handle: RePEc:eee:ejores:v:190:y:2008:i:1:p:241-254
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    References listed on IDEAS

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    1. d'Aspremont, C & Gabszewicz, Jean Jaskold & Thisse, J-F, 1979. "On Hotelling's "Stability in Competition"," Econometrica, Econometric Society, vol. 47(5), pages 1145-1150, September.
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    4. Marcello Montefiori, 2005. "Spatial competition for quality in the market for hospital care," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 6(2), pages 131-135, June.
    5. Helge Sanner, 2005. "Instability in Competition: Hotelling Re-reconsidered," Volkswirtschaftliche Diskussionsbeiträge 79, Universität Potsdam, Wirtschafts- und Sozialwissenschaftliche Fakultät.
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    Cited by:

    1. Linjia Wu & Kevin Han & Han Wu & Yu Shi & Canyao Liu, 2024. "Optimizing the Capacity Allocation of the Chinese Hierarchical Healthcare System under Heavy Traffic Conditions," Mathematics, MDPI, vol. 12(15), pages 1-19, August.
    2. Hassin, Refael & Nowik, Irit & Shaki, Yair Y., 2018. "On the price of anarchy in a single-server queue with heterogeneous service valuations induced by travel costs," European Journal of Operational Research, Elsevier, vol. 265(2), pages 580-588.
    3. C. Ruiz & F. J. Nogales & F. J. Prieto, 2018. "Retail Equilibrium with Switching Consumers in Electricity Markets," Networks and Spatial Economics, Springer, vol. 18(1), pages 145-180, March.
    4. Xia, Yu, 2011. "Competitive strategies and market segmentation for suppliers with substitutable products," European Journal of Operational Research, Elsevier, vol. 210(2), pages 194-203, April.

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