Operations, Information and Decisions Papers

Document Type

Journal Article

Date of this Version

2-2002

Publication Source

Management Science

Volume

48

Issue

2

Start Page

207

Last Page

221

DOI

10.1287/mnsc.48.2.207.256

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.

Keywords

Customer loyalty, quality competition, bayesian bandit

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Date Posted: 27 November 2017

This document has been peer reviewed.