Dynamic Control of an M/M/1 Service System with Adjustable Arrival and Service Rates

Bari\c{s} Ata () and Shiri Shneorson ()
Additional contact information
Bari\c{s} Ata: Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, Illinois 60208
Shiri Shneorson: Intel Corporation, 2220 Mission College, Santa Clara, California 95054

Management Science, 2006, vol. 52, issue 11, 1778-1791

Abstract: We study a service facility in which the system manager dynamically controls the arrival and service rates to maximize the long-run average value generated. We initially consider a rate-setting problem where the service facility is modeled as an M/M/1 queue with adjustable arrival and service rates and solve this problem explicitly. Next, we use this solution to study a price-setting problem, where customers are utility maximizing and price- and delay-sensitive, and the system manager chooses state-dependent service rates and prices. We find that the optimal arrival rate is decreasing and the optimal service rate is increasing in the number of customers in the system; however, the optimal price need not be monotone. We also show that under the optimal policy, the service facility operates as one with a finite buffer. Finally, we study a numerical example to compare the social welfare achieved using a dynamic policy to that achieved using static policies and show the dynamic policy offers significant welfare gains.

Keywords: stochastic models of service systems; dynamic control; delay-sensitive customers (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

Downloads: (external link)
http://dx.doi.org/10.1287/mnsc.1060.0587 (application/pdf)

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:inm:ormnsc:v:52:y:2006:i:11:p:1778-1791

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().