Service Mechanism and Pricing Based on Fairness Preference of Customers in Queuing System

Xu Yong (), Liu Jian (), Ma Baomei () and Zhang Shuai ()
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Xu Yong: School of Economics and Management, Nanjing University of Science and Technology, Nanjing, 210094, China
Liu Jian: School of Economics and Management, Nanjing University of Science and Technology, Nanjing, 210094, China
Ma Baomei: School of Economics and Management, Nanjing University of Aeronautics and Astronautics, Nanjing, 211106, China
Zhang Shuai: School of Economics and Management, Nanjing University of Science and Technology, Nanjing, 210094, China

Journal of Systems Science and Information, 2018, vol. 6, issue 6, 481-494

Abstract: Service providers often adopt the mechanism of customer classification due to the heterogeneity of customer waiting cost. However, the classification service may cause unfairness feeling of regular customers, then affect the revenue and social welfare. This paper provides the first exact analysis about the situation that service providers offer two classes of non-preemptive priority service when customer fairness perception is explicitly modeled. We model customer fairness perception as a negative utility on regular customers that’s proportional to the waiting time difference between the two queues. By analyzing a stylized M/M/1 queue in monopoly service system, we can derive important results some of which reaffirm existed research results. First, from the perspective of revenue maximization, service providers should also adopt the mechanism of customer classification and set up the two kinds of customers where they can see each other. Next, considering customer utility maximization, service providers should cancel the mechanism of customer classification, and keep one queue (regular customers) only. Then, from the perspective of social welfare maximization, service providers should also adopt the mechanism of customer classification but set up the two kinds of customers where they cannot feel each other. Finally, this paper concludes the optimal pricing based on customer classification in the above three different perspectives. This research shows important reference value and practical significance for service providers who adopt the mechanism of classification service.

Keywords: service operation; fairness preference; revenue; utility; social welfare; optimization (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:jossai:v:6:y:2018:i:6:p:481-494:n:1

DOI: 10.21078/JSSI-2018-481-14

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