Price and time competition for make-to-order firms

Abstract

With the advancement in information infrastructure and the collaboration of different levels in supply chains, more and more firms adopt the make-to-order mode. Firms operating such mode must compete on the prices that they charge and on their service responsiveness customers. This thesis studies the competition of a duopoly of make-to-order firms. Each firm is modeled by an M/M/l queue. The firms posted the prices they charge for service. Knowing the expected reward and the expected waiting time at each firm, potential customers choose either to receive service at one of the firms or to seek an alternative opportunity to maximize their expected net rewards. The arrival times of potential customers follow a Poisson process. In the short run, the service capacity is given, and the firms maximize their expected revenues by choosing prices. In the long run, the firms maximize their expected profits by choosing both prices and service capacities. In both cases, the Nash equilibrium is identified. In addition, the social efficiency of the duopoly competition is explored