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
Allon, Gad, Awi Federgruen and Margaret Pierson
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.
Allon, Gad, Awi Federgruen and Margaret Pierson. 2012. 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 and Service Operations Management. 13(4): 489-507.