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Service firms have increasingly been competing for market share on the basis of delivery time. Many firms now choose to set customer expectation by announcing their maximal delivery time. Customers will be satisfied if their perceived delivery times are shorter than their expectations. This gap model of service quality is used in this paper to study how a firm might choose a delivery-time commitment to influence its customer expectation, and delivery quality in order to maximize its market share. A market share model is developed to capture (1) the impact of delivery-time commitment and delivery quality on the firm's market share and (2) the impact of the firm's market share and process variability on delivery quality when there is a congestion effect. We show that the choice of the delivery-time commitment requires a proper balance between the level of service capacity and customer sensitivities to delivery-time expectation and delivery quality. We prove the existence of Nash equilibria in a duopolistic competition, and show that this delivery-time commitment game is analogous to a Prisoners' Dilemma.
Ho et al. (2004) studied this question.