Allocating Capacity Among Quality Differentiated Products: Evidence From Airline Industry

Yayla‐Küllü, H. Müge; Tansitpong, Praowpan

doi:10.1080/10599231.2011.558354

Cited by 2 publications

(1 citation statement)

References 46 publications

(61 reference statements)

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“…Indeed, for the airline example, business class seats are perceived as better quality (

q_{H} > q_{L}

); they are bigger in size (

s_{H} > s_{L}

); and it costs more to serve them (

c_{H} > c_{L}

) due to the greater number of flight attendants, food and drinks, and so forth. Yayla‐Küllü and Tansitpong () also provide empirical support that the resource consumption differences between the products have a significant impact on airlines' capacity allocation decisions.…”

Section: Modelmentioning

confidence: 95%

Capacity Investment and Product Line Decisions of a Multiproduct Leader and a Focus Strategy Entrant

Yayla‐Küllü¹

2013

Decision Sciences

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In this article, I investigate the capacity investment cost conditions where a multiproduct market leader may respond to a focus strategy entrant by using different strategies such as changing the product mix, production volumes, quality levels, and/or by investing in more capacity. The products offered in the market are quality differentiated and customers are heterogeneous in their willingness to pay for quality. The capacity investment costs of the two firms (i.e., the leader and the entrant) may also be different. The classical Stackelberg model predicts that an incumbent does not change its position in response to entry. However, when heterogeneous customer base, product differentiation, and capacity costs are taken into consideration, I find that the leader with a low capacity cost may choose to expand its product line and increase its production. The leader with low capacity cost may introduce a product that it was holding back when the entrant has to bear the high-capacity cost and cannibalization threat is relatively small. Nevertheless, the extent of production volume strategies reduces as the capacity cost increases for the leader. I also find that when the leader has the power to set the industry standards by deciding the quality levels, as a response to a high-quality focused entrant, the leader increases both levels of quality and production of the low-quality product. Moreover, when the capacity investment cost is high for both the entrant and the leader, I find that market prices may increase with entry.

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“…Indeed, for the airline example, business class seats are perceived as better quality (