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Customer Loyalty and Supplier Quality Competition

Author

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  • Noah Gans

    (OPIM Department, The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

Abstract

We develop a model of customer choice in response to random variation in quality. The choice model yields closed-form expressions which reflect the effect of competing suppliers' service quality on the long-run fraction of purchases a customer makes at the various competitors. We then use the expressions as the basis of simple normative models for suppliers seeking to maximize their long-run average profits. The results provide insight into the effect of switching behavior on the service levels offered by competing suppliers.

Suggested Citation

  • Noah Gans, 2002. "Customer Loyalty and Supplier Quality Competition," Management Science, INFORMS, vol. 48(2), pages 207-221, February.
    • Handle: RePEc:inm:ormnsc:v:48:y:2002:i:2:p:207-221
    DOI: 10.1287/mnsc.48.2.207.256
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    References listed on IDEAS

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