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

Gad Allon*, Awi Federgruen, Margaret Pierson

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

39 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)489-507
Number of pages19
JournalManufacturing and Service Operations Management
Volume13
Issue number4
DOIs
StatePublished - Sep 1 2011

Keywords

  • Choice models
  • Operations marketing interface
  • Queueing
  • Service competition
  • Structural estimation

ASJC Scopus subject areas

  • Strategy and Management
  • Management Science and Operations Research

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