Capacity planning is a critical issue for most e-commerce web sites. We examine capacity decisions made in a duopolistic setting where customers may renege at one firm’s web site to visit the competitor’s web site. Independent capacity decisions made at each firm are analyzed and compared to those made by a central planner as well as to those made by a monopolistic firm that caters to the entire market demand. We find that competing firms under-invest in capacity (as compared to the central planner) when customers are relatively tolerant of web site delays, but over-invest when customer impatience level increases beyond a point. Also, when compared to the monopoly, the total profit earned by the duopoly can be larger or smaller depending on the customer tolerance level for delay. Several analytical and numerical results are presented.
Liu, Dengpan; Kumar, Subodha; and Mookerjee, Vijay, "Capacity Decisions at eCommerce Sites: A Competitive Analysis" (2005). AMCIS 2005 Proceedings. 376.