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How Much Is a Reduction of Your Customers' Wait Worth? An Empirical Study of the Fast-Food Drive-Thru Industry Based on Structural Estimation Methods

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  • Gad Allon

    (Kellogg School of Management, Northwestern University, Evanston, Illinois 60208)

  • Awi Federgruen

    (Graduate School of Business, Columbia University, New York, New York 10027)

  • Margaret Pierson

    (Harvard Business School, Harvard University, Boston, Massachusetts 02163)

Abstract

In many service industries, companies compete with each other on the basis of the waiting time their customers experience, along with other strategic instruments such as the price they charge for their service. The objective of this paper is to conduct an empirical study of an important industry to measure to what extent waiting time performance impacts different firms' market shares and price decisions. We report on a large-scale empirical industrial organization study in which the demand equations for fast-food drive-thru restaurants in Cook County are estimated based on so-called structural estimation methods. Our results confirm the belief expressed by industry experts, that in the fast-food drive-thru industry customers trade off price and waiting time. More interestingly, our estimates indicate that consumers attribute a very high cost to the time they spend waiting.

Suggested Citation

  • Gad Allon & Awi Federgruen & Margaret Pierson, 2011. "How Much Is a Reduction of Your Customers' Wait Worth? An Empirical Study of the Fast-Food Drive-Thru Industry Based on Structural Estimation Methods," Manufacturing & Service Operations Management, INFORMS, vol. 13(4), pages 489-507, October.
    • Handle: RePEc:inm:ormsom:v:13:y:2011:i:4:p:489-507
    DOI: 10.1287/msom.1110.0343
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    References listed on IDEAS

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