Demand Equilibria in Spatial Service Systems

John Gunnar Carlsson (), Xiaoshan Peng () and Ilya O. Ryzhov ()
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John Gunnar Carlsson: Industrial and Systems Engineering, University of Southern California, Los Angeles, California 90089
Xiaoshan Peng: Kelley School of Business, Indiana University, Bloomington, Indiana 47405
Ilya O. Ryzhov: Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742

Manufacturing & Service Operations Management, 2024, vol. 26, issue 6, 2305-2321

Abstract: Problem definition : A service is offered at certain locations (“facilities”) in a geographical region. Customers can appear anywhere in the region, and each customer chooses a facility based on travel distance as well as expected waiting time. Customer decisions affect waiting times by increasing the load on a facility, and thus, they impact other customers’ decisions. The service provider can also influence service quality by adjusting service rates at each facility. Methodology/results : Using a combination of queueing models and computational geometry, we characterize demand equilibria in such spatial service systems. An equilibrium can be visualized as a partition of the region into service zones that form as a result of customer decisions. Service rates can be set in a way that achieves the best-possible social welfare purely through decentralized customer behavior. Managerial implications : We provide techniques for computing and visualizing demand equilibria as well as calculating optimal service rates. Our analytical and numerical results indicate that in many situations, resource allocation is a far more significant source of inefficiency than decentralized behavior.

Keywords: spatial service systems; geographical partitioning; Voronoi diagrams; equilibrium analysis (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:26:y:2024:i:6:p:2305-2321

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