 Incentive-Compatible Pricing for a Service Facility with Joint Production and Congestion ExternalitiesAlbert Y. Ha
Management Science, 1998, vol. 44, issue 12-Part-1, 1623-1636 Abstract: This paper considers the pricing problem of a service facility when services are jointly produced by the customers and the facility. Building on the work of Mendelson (1985), we model the facility as a GI/GI/1 queue with customer-chosen service rates and linear delay costs. We show that the service rates chosen by the customers, based on their self-interest, are always suboptimal for the facility due to congestion externalities. We derive optimal incentive-compatible pricing schemes that can achieve optimal arrival rates and induce customers to choose optimal service rates. For the case of systemwide net-value maximization, we show that the optimal incentive-compatible pricing scheme consists of a variable fee that is proportional to the actual service time and a fixed rebate that is equal to a customer's expected delay cost in the queue. For the case of profit maximization of the facility, we show that the optimal pricing scheme again consists of a fixed fee and a variable fee. One insight from our analysis is that it may be appropriate for a service facility to reimburse each customer for his actual delay cost in the queue. Keywords: Pricing; Incentive; Delay Cost; Service Facility; Joint Production; Optimal Design of Queues (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:44:y:1998:i:12-part-1:p:1623-1636 Access Statistics for this article More articles in Management Science from INFORMS Contact information at EDIRC. |
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