Journal of Applied Mathematics and Decision Sciences
Volume 5 (2001), Issue 3, Pages 133-150

The joint determination of price, quality, and capacity: An application to supermarket operations

Jess S. Boronico1 and Alexandros Panayides2

1Dean, Cotsakas College of Business, William Paterson University, Wayne 07470, NJ, USA
2School of Business Administration, Department of Economics and Finance, Monmouth University, West Long Branch 07764, NJ, USA

Copyright © 2001 Jess S. Boronico and Alexandros Panayides. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


This paper focuses on a service provider who, faced with competition, must determine the optimal price and level of service quality to provide in order to maximize profits. Service quality and price are assumed to impact jointly on demand for services. Both demand and service quality impact on the cost of providing service. While a considerable literature exists on the impact of service quality on demand or cost, less work has focused on the explicit impact of service quality jointly on both demand for and the cost of providing services. A service quality constraint is appended to the formulation in order to guarantee that a declared service standard is met. Conditions are developed which characterize optimal solutions, together with comparative statics. Illustrative results are presented based on empirical data obtained from a supermarket study.