Fair and profitable: How pricing and lead-time quotation policies can help

Barış Balcıõglu and Yãgız Varol

European Journal of Operational Research, 2022, vol. 299, issue 3, 977-986

Abstract: In this paper, we propose four policies to serve price and lead-time sensitive customers with a single type of product produced in an M/GI/1 type make-to-stock queueing system. The policies are developed to observe certain principles of fairness: if a customer is quoted a longer lead-time, she/he must be charged a lower price and a significant proportion of the deliveries has to be made during the quoted lead times. Although handling non-exponential service times in this setting presents difficulties, our analysis of the proposed policies is exact. Two of the policies operate with static prices, while one of the two dynamic pricing policies also quotes dynamic lead times. By construction of the policies, we show that the dynamic pricing policies are more profitable. Numerical examples bring additional light by showing that in small markets with oversensitive customers, dynamic policies can be profitable while static pricing policies can fail. In a larger market, a simple dynamic policy charging two prices depending on the stock availability can be a reasonable compromise. Dynamic policies tend to suffer less against high production time variability as well.

Keywords: Queueing; Make-to-stock queues; Pricing; Lead-time quotation; Service time variability (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0377221722000315
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:299:y:2022:i:3:p:977-986

DOI: 10.1016/j.ejor.2022.01.013

Access Statistics for this article

European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati

More articles in European Journal of Operational Research from Elsevier
Bibliographic data for series maintained by Catherine Liu ().