Inferring Quality from Wait Time

Abstract

We study the impact of wait time on consumers' purchasing behavior when product quality is unknown to some consumers the "uninformed consumers" but known to others the "informed consumers". In a capacitated environment, wait times act as a signal of quality for uninformed consumers because, due to informed consumers in the population, low high quality products tend to generate shorter longer wait times. Hence, longer wait times may increase uninformed consumers' perceived quality, and they may still purchase the product, even when the wait time is long. Similarly, short wait times decrease the consumers' perceived quality, and they may walk away despite the short wait-the "empty restaurant syndrome." This paper develops and tests a theory of observational learning that predicts these effects. We find that uninformed consumers' purchasing probability at short waits decreases in the presence of informed consumers. Furthermore, we find that relatively few informed consumers suffice to create this effect. Finally, we show that the purchasing frequency might even increase in the wait time. Data, as supplemental material, are available at http://dx.doi.org/10.1287/mnsc.2015.2264 . This paper was accepted by Martin Lariviere, operations management.