Optimal Incentive-Compatible Priority Pricing for the M/M/1 Queue

Haim Mendelson and Seungjin Whang
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Haim Mendelson: University of Rochester, Rochester, New York
Seungjin Whang: Stanford University, Stanford, California

Operations Research, 1990, vol. 38, issue 5, 870-883

Abstract: Consider a system that is modeled as an M/M/1 queueing system with multiple user classes. Each class is characterized by its delay cost per unit of time, its expected service time and its demand function. This paper derives a pricing mechanism which is optimal and incentive-compatible in the sense that the arrival rates and execution priorities jointly maximize the expected net value of the system while being determined, on a decentralized basis, by individual users. A closed-form expression for the resulting price structure is presented and studied.

Keywords: information systems; management: transfer pricing for computer services; organizational studies; information: systems design under asymmetric information; queues; priority: priority pricing of service operations (search for similar items in EconPapers)
Date: 1990
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Persistent link: https://EconPapers.repec.org/RePEc:inm:oropre:v:38:y:1990:i:5:p:870-883

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