On the Downs–Thomson Paradox in a Self-Financing Two-Tier Queuing System

Pengfei Guo (), Charles Lindsey () and Zhe George Zhang ()
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Pengfei Guo: Faculty of Business, Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong
Zhe George Zhang: Department of Decision Sciences, Western Washington University, Bellingham, Washington 98225; and Beedie School of Business, Simon Fraser University, Burnaby, British Columbia V5A 1S6, Canada

Manufacturing & Service Operations Management, 2014, vol. 16, issue 2, 315-322

Abstract: We model a two-tier queuing system with free and toll service options as two parallel M / M /1 servers. We solve for the welfare-maximizing toll service capacity and toll subject to the constraint that the toll service cover its costs. If the free and toll services are both used in equilibrium, a larger free-service capacity implies longer expected waiting time for the free service and lower welfare: an analogue to the Downs–Thomson paradox in transportation economics. The paradox is caused by the presence of scale economies in the toll service combined with the requirement that it be self-financing.

Keywords: queuing system; two-tier service system; equilibrium arrival rates; pricing and capacity decisions; Downs–Thomson paradox (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:16:y:2014:i:2:p:315-322

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