Signaling Quality via Queues

Laurens G. Debo (), Christine Parlour () and Uday Rajan ()
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Laurens G. Debo: Booth School of Business, University of Chicago, Chicago, Illinois 60637
Christine Parlour: Haas School of Business, University of California, Berkeley, Berkeley, California 94720
Uday Rajan: Ross School of Business, University of Michigan, Ann Arbor, Michigan 48109

Management Science, 2012, vol. 58, issue 5, 876-891

Abstract: We consider an M / M /1 queueing system with impatient consumers who observe the length of the queue before deciding whether to buy the product. The product may have high or low quality, and consumers are heterogeneously informed. The firm chooses a slow or (at a cost) a fast service rate. In equilibrium, informed consumers join the queue if it is below a threshold. The threshold varies with the quality of the good, so an uninformed consumer updates her belief about quality on observing the length of the queue. The strategy of an uninformed consumer has a "hole": she joins the queue at lengths both below and above the hole, but not at the hole itself. We show that if the prior probability the product has high quality and the proportion of informed consumers are both low, a high-quality firm may select a slower service rate than a low-quality firm. The queue can therefore be a valuable signaling device for a high-quality firm. Strikingly, in some scenarios, the high-quality firm may choose the slow service rate even if the technological cost of speeding up is zero. This paper was accepted by Assaf Zeevi, stochastic models and simulation.

Keywords: games-group decisions; stochastic; probability; stochastic model applications; queues; birth-death (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (41)

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