Speed–Quality Trade-Offs in a Dynamic Model

Abstract

A n important trade-off organizations face in many environments is one between quality and speed. Working faster may result in greater output and less delay, but may result in lower quality and dissatisfied customers. In this work, we consider dynamic models in a monopoly setting to explore the optimal balance among the multiple dimensions of speed, price, and wait time. The impact of quality is captured via the market demand potential, which is a function of the speed (quality) in the previous period. We obtain several results and insights. First, in scenarios where speed may be difficult to change over time (e.g., some automated production lines) but price can be changed, we show that the optimal price charged is such that the demand rate remains constant over time, even though the price and market potential are changing. Furthermore, we identify conditions when the firm will work at a speed that is higher or lower than a benchmark speed and characterize the behavior of prices over time. Second, in scenarios where a firm may not be able to change prices but can adjust the speed each period, the firm starts at a speed that may be faster or slower than a benchmark speed but converges to it over time. In this constant price case, as the benchmark speed increases, the initial speed adopted by the firm is actually lower but increases more quickly thereafter. We also characterize the behavior of price and speed in settings where both can be changed over time. Interestingly, a firm typically starts at a slow speed and increases the speed, price, and demand over time. Although our main model assumes that the firm internalizes the congestion cost, several of our results extend to a scenario where the demand rate is impacted by the congestion level.

Quality‐Speed Competition in Customer‐Intensive Services with Boundedly Rational Customers

“…(, ), Alizamir et al. (), Kostami and Rajagopalan (), Tong (), Tong and Rajagopalan (), Xu et al. () and Paç and Veeraraghavan ().…”

Value of Combining Patient and Provider Incentives in Humanitarian Health Care Service Programs

“…Following the modeling framework used by several papers within the operations management literature (Anand et al. , Kostami and Rajagopalan ), we consider an M/M/1 queuing system to model the interplay between the provider’s service rate and the patients’ decision to seek or to not seek care. For a M/M/1 model, the patient’s expected opportunity cost is given by , where .…”

“…Similar to the linear framework used in the literature (see Anand et al. , Kostami and Rajagopalan ), we assume that the provider’s mean service rate is , that is, the service rate goes down as the provider seeks to improve process quality. Notice that when , the provider’s service rate is α .…”

Threshold Routing to Trade Off Waiting and Call Resolution in Call Centers

“…There are many papers that discuss speed-quality trade-offs. Recent work includes Alizamir et al (2013), Anand et al (2011), and Kostami and Rajagopalan (2014). However, there is no concept in those papers of poor service quality resulting in a follow-up service request (retrial), or a callback, in the call center terminology.…”