Pricing in Queues Without Demand Information

Moshe Haviv () and Ramandeep S. Randhawa ()
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Moshe Haviv: Department of Statistics and Center of Rationality, Hebrew University of Jerusalem, 91905 Jerusalem, Israel
Ramandeep S. Randhawa: Marshall School of Business, University of Southern California, Los Angeles, California 90089

Manufacturing & Service Operations Management, 2014, vol. 16, issue 3, 401-411

Abstract: We consider revenue optimization in an M / M /1 queue with price and delay sensitive customers, and we study the performance of demand-independent pricing that does not require any arrival rate information. We formally characterize the optimal demand-independent price and its performance relative to pricing with precise arrival rate knowledge. We find that demand-independent pricing can perform remarkably well and its performance improves as customers become more delay sensitive. In particular, for uniformly distributed customer valuations, under a large set of parameters, we find that demand-independent prices can capture more than 99% of the optimal revenue. We also study social optimization and find that demand-independent pricing can perform quite well; however, the performance is better under revenue optimization.

Keywords: static pricing; dynamic pricing; revenue optimization; robust optimization (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:16:y:2014:i:3:p:401-411

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