Capacity management: Pricing strategy, performance and the role of information

Capacity management: Pricing strategy, performance and the role of information

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Article ID: iaor1996840
Country: Netherlands
Volume: 40
Issue: 1
Start Page Number: 89
End Page Number: 100
Publication Date: Jun 1995
Journal: International Journal of Production Economics
Authors:
Keywords: capacity planning
Abstract:

A queueing model is used to analyse the interrelation between system performance, pricing strategy and information. Two input control methods are studied: a club approach (controlling the expected arrival rate) and a free-entry system (controlling the maximum backlog), where a new customer may or may not be able to observe the existing backlog. The club approach generally leads to higher prices, lower utilization and lower profit. Under the free-entry system customers are better off if they can observe the backlog, but society as a whole is worse off. If there is a shortage of customers, the club approach becomes more attractive, as customers must per-commit.

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