Optimal Dynamic Pricing Policies for an M / M / s Queue

David W. Low
Additional contact information
David W. Low: IBM Scientific Center, Los Angeles, California

Operations Research, 1974, vol. 22, issue 3, 545-561

Abstract: We consider the problem of maximizing the long-run average expected reward per unit time in a queuing-reward system, which we formulate as a semi-Markov decision process. Control of the system is effected by increasing or decreasing the price charged for the facility's service in order to discourage or encourage the arrival of customers. We assume that the arrival process is Poisson with arrival rate a strictly decreasing function of the currently advertized price, and that the service times are independent exponentially distributed random variables. The reward structure consists of customer payments and holding costs (possibly nonlinear). At each transition (customer arrival or service completion), the manager of the facility must choose one of a finite number of prices to advertize until the next transition. We show that there exist optimal stationary policies and that each possesses the monotonicity property: the optimal price to advertize is a nondecreasing function of the number of customers in the system. An efficient computational algorithm is developed that, in a finite number of steps, produces a stationary policy that is optimal.

Date: 1974
References: Add references at CitEc
Citations: View citations in EconPapers (16)

Downloads: (external link)
http://dx.doi.org/10.1287/opre.22.3.545 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:22:y:1974:i:3:p:545-561

Access Statistics for this article

More articles in Operations Research from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().