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Consumers willing to pay more for faster service, according to study by UCLA professor.

LOS ANGELES--(BUSINESS WIRE)--Feb. 10, 1995--Consumers are willing to pay higher prices for some goods and services in exchange for faster service, according to a new study co-authored by Professor Ivan Png of The Anderson Graduate School of Management at UCLA.

By examining transactions at gasoline stations, Png and his fellow researchers found that consumers were willing to pay about 1 percent more for every 6 percent reduction in waiting time at the gas pumps.

``Customers care about how much time they have to wait in line, and those with higher incomes care the most,'' said David Reitman, co-author of the study and assistant professor at Ohio State University.

The study found evidence that higher-income people were more sensitive to crowded gas lines than those with lower incomes and were willing to pay more for faster service. The study, which was reported in a recent issue of the RAND Journal of Economics, was based on data from a census of 1,500 gasoline service stations in four eastern Massachusetts counties collected over 12 weeks in early 1987. Prices, volume of gas sold and other data were collected.

In gasoline sales, service time may not seem to matter much to consumers. ``But on the other hand, if service time didn't matter at all, then gas stations would only have one service island,'' said Reitman.

Service stations separate themselves from their competitors by setting different prices, Reitman said. Stations with lower prices attract budget consumers but require longer waits. Stations with relatively higher prices may get fewer customers but attract those who don't want to wait for service.

Contrary to popular belief, the researchers found that gas stations that were clustered together were not likely to set prices to match their neighboring competitors. In fact, prices were more dispersed at stations that faced immediate competition than at stations whose nearest competitor was not as close.

``This suggests that nearby stations are trying to differentiate themselves,'' Reitman said. ``A station with higher gas prices may seem to be at a disadvantage, but actually may not be if some customers are willing to pay more for faster service.''

This study supports the economic theory that people with higher incomes are willing to pay for faster service because their time is worth more in monetary terms, Reitman said. Results showed that gas stations with lower prices did not attract as many customers in high-income neighborhoods as they did in low-income areas.

Other research has shown that service time matters in other industries, too, such as food sales, Reitman said. ``Why would anyone go to a convenience store to buy food when a supermarket is cheaper? Because a convenience store is much faster,'' he said.

CONTACT: The John E. Anderson Graduate School of Management

Mary Daily, 310/206-8197

mdaily(at-sign)agsm.ucla.edu
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Publication:Business Wire
Date:Feb 10, 1995
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