Optimal Contract Period for Priority Service

Hung-Po Chao and Robert Wilson ()
Additional contact information
Hung-Po Chao: Electric Power Research Institute, Palo Alto, California

Operations Research, 1990, vol. 38, issue 4, 598-606

Abstract: In industries with capacity constraints and nonstorable outputs, priority service is a form of market organization in which customers subscribe in advance to the order in which they will be served from scarce supplies. The optimal duration of priority service contracts depends on a tradeoff between transaction costs and efficiency gains that, in turn, depends on the serial correlations of customers' service valuations. Using a stationary Markov process to characterize the distribution of customers' valuations, we present several simple methods that illustrate the principal determinants of the optimal contract period.

Keywords: decision analysis; applications: optimal contract period; dynamic programming; applications: optimal contract period; industries; electric: priority service of electric power (search for similar items in EconPapers)
Date: 1990
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://dx.doi.org/10.1287/opre.38.4.598 (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:38:y:1990:i:4:p:598-606

Access Statistics for this article

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