Abstract
We study a multiserver queueing model of a revenue-maximizing firm providing a service to a market of heterogeneous price- and delay-sensitive customers with private individual preferences. The firm may offer a selection of service classes that are differentiated in prices and delays. Using a deterministic relaxation, which simplifies the problem by preserving the economic aspects of price-and-delay differentiation while ignoring queueing delays, we construct a solution to the fully stochastic problem that is incentive compatible and near optimal in systems with large capacity and market potential. Our approach provides several new insights for large-scale systems: (i) the deterministic analysis captures all pricing, differentiation, and delay characteristics of the stochastic solution that are nonnegligible at large scale; (ii) service differentiation is optimal when the less delay-sensitive market segment is sufficiently elastic; (iii) the use of "strategic delay" depends on system capacity and market heterogeneity-and it contributes significant delay when the system capacity is underutilized or when the firm offers three or more service classes; and (iv) connecting economic optimization to queueing theory, the revenue-optimized system has the premium class operating in a "quality-driven" regime and the lower-tier service classes operating with noticeable delays that arise either endogenously ("efficiency-driven" regime) or with the addition of strategic delay by the service provider.
Original language | English (US) |
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Pages (from-to) | 2427-2444 |
Number of pages | 18 |
Journal | Management science |
Volume | 64 |
Issue number | 5 |
DOIs | |
State | Published - May 2018 |
Externally published | Yes |
Keywords
- Damaged goods
- Many-server limits
- Pricing
- Queueing games
- Revenue management
- Service differentiation
ASJC Scopus subject areas
- Strategy and Management
- Management Science and Operations Research