Abstract
Lead time, in addition to price, has become a dominant factor in competition in the service industry. A service provider often provides lead time and price quotations to customers before customers place orders. A short lead time may enable a service provider to charge a high price, but it also requires a certain capacity level to maintain a short lead time. We analyze the interrelationship among lead time, price, and capacity to decide an optimal value for each of them simultaneously. When a firm offers a menu of lead times and prices for customers to choose from, it is called differentiated quotation mode. There exists a cannibalization issue among the options in the differentiated quotation mode. Our model takes care of the cannibalization issue and provides insights to help managers design an optimal differentiated lead time and price quotation menu.
Published Version
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