Name
Abstract | ||
|---|---|---|
AbstractService firms such as amusement parks, ski resorts, and cultural institutions sell season passes and memberships that provide prioritized entry, while also offering nonprioritized pay-per-use access. If all customers value their time similarly, it is not clear why some customers get priory service. In “Pricing and Prioritizing Time-Sensitive Customers with Heterogeneous Demand Rates,” P. Afèche, O. Baron, J. Milner, and R. Roet-Green focus on the problem of designing price/lead-time menus and the corresponding priority policy for a profit-maximizing service provider serving customers with private information on their preferences. The key novelty is that the paper studies settings in which customers have demand for multiple uses with different frequencies. They show that prioritizing customers may be optimal when they differ in their demand rates, even if they have the same delay cost. Furthermore, doing so can generate significant profit gains compared with FIFO service.We consider the pricing/lead-time menu design problem for a monopoly service in which time-sensitive customers have demand on multiple occasions. Customers differ in their demand rates and marginal values (per use). We assume that customers queue for a finite-capacity service under a general pricing structure. Customers choose a plan from the menu to maximize their expected utility. We compare two models: one in which the demand rate is the private information of the customers, and another in which the firm has full information. In the Aggregate Control Model the firm controls the number of plans it sells for each class of service but cannot track each customer’s usage level. In the Individual Control Model the firm can track the usage of individual customers but does not control the number of plans sold. In contrast to previous work, we show that, although we assume customers do not differ in their waiting cost, prioritizing customers may be optimal as a result of demand rate heterogeneity in the private information case. We provide necessary and sufficient conditions for this result. In particular, we show that for intermediate capacity, more-frequent-use customers that hold a lower marginal value per use should be prioritized. Further, less-frequent-use customers may receive a consumer surplus. We demonstrate the applicability of these results to relevant examples. The structure of the result implies that in some cases it may be beneficial for the firm to prioritize a customer class with a lower marginal waiting cost. |
Year | DOI | Venue |
|---|---|---|
2019 | 10.1287/opre.2018.1788 | Periodicals |
Keywords | Field | DocType |
capacity pricing,heterogeneous usage rate,priority queues | Operations research,Time sensitive,Amusement,Priority queue,Mathematics,Operations management | Journal |
Volume | Issue | ISSN |
67 | 4 | 0030-364X |
Citations | PageRank | References |
0 | 0.34 | 0 |
Authors | ||
4 | ||
Name | Order | Citations | PageRank |
|---|---|---|---|
| Philipp AfèChe | 1 | 72 | 7.06 |
| Opher Baron | 2 | 145 | 14.64 |
| Joseph M. Milner | 3 | 79 | 7.36 |
| Ricky Roet-Green | 4 | 7 | 2.28 |