Does it pay to reduce your customers’ wait? An empirical industrial organization study of the fast-food drive-thru industry based on structural estimation methods

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, what we believe to be the first, empirical study of an important industry to test whether and to what extent waiting time performance measures impact 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.