Optimal static pricing for a service facility with holding costs

Idriss Maoui, Hayriye Ayhan and Robert D. Foley

European Journal of Operational Research, 2009, vol. 197, issue 3, 912-923

Abstract: We study a service facility modelled as a single-server queueing system with Poisson arrivals and limited or unlimited buffer size. In systems with unlimited buffer size, the service times have general distributions, whereas in finite buffered systems service times are exponentially distributed. Arriving customers enter if there is room in the facility and if they are willing to pay the posted price. The same price is charged to all customers at all times (static pricing). The service provider is charged a holding cost proportional to the time that the customers spend in the system. We demonstrate that there is a unique optimal price that maximizes the long-run average profit per unit time. We also investigate how optimal prices vary as system parameters change. Finally, we consider buffer size as an additional decision variable and show that there is an optimal buffer size level that maximizes profit.

Keywords: Applied; probability; Pricing; Queueing; Revenue; management (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:197:y:2009:i:3:p:912-923

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