Optimal Price/Lead-Time Menus for Queues with Customer Choice: Segmentation, Pooling, and Strategic Delay

Philipp Afèche () and J. Michael Pavlin ()
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Philipp Afèche: Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada
J. Michael Pavlin: School of Business and Economics, Wilfrid Laurier University, Waterloo, Ontario N2L 3C5, Canada

Management Science, 2016, vol. 62, issue 8, 2412-2436

Abstract: How should a firm design a price/lead-time menu and scheduling policy to maximize revenues from heterogeneous time-sensitive customers with private information about their preferences? We consider a queueing system with multiple customer types that differ in their valuations for instant delivery and their delay costs. The distinctive feature of our model is that the ranking of customer preferences depends on lead times: patient customers are willing to pay more than impatient customers for long lead times, and vice versa for speedier service. We provide necessary and sufficient conditions, in terms of the capacity, the market size, and the properties of the valuation-delay cost distribution, for three features of the optimal menu and segmentation: pricing out the middle of the delay cost spectrum while serving both ends, pooling types with different delay costs into a single class, and strategic delay to deliberately inflate lead times. This paper was accepted by Assaf Zeevi, stochastic models and simulation .

Keywords: congestion; delay; incentives; lead times; mechanism design; pooling; pricing; priorities; quality of service; queueing systems; revenue management; scheduling; segmentation; service differentiation; strategic delay (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:62:y:2016:i:8:p:2412-2436

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