Optimal pricing for service facilities with self-optimizing customers

Optimal pricing for service facilities with self-optimizing customers

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Article ID: iaor20031416
Country: Netherlands
Volume: 141
Issue: 1
Start Page Number: 39
End Page Number: 57
Publication Date: Aug 2002
Journal: European Journal of Operational Research
Authors: ,
Keywords: management
Abstract:

Many service industries (e.g., walk-in clinics, vehicle inspection facilities, and data-processing centers) have customers who choose among congested facilities, and select the facility with the lowest combination of travel cost plus congestion cost at the facility. In general, customers over-utilize attractive facilities, causing higher costs than if customers were assigned to facilities to minimize total costs. Optimal facility prices induce customers to select facilities that minimize total cost. We find optimal facility prices and show they equal charging customers for the impact (net costs and benefits) they cause for others. We explore a rich flexibility that allows a range of optimal prices, useful when negotiating the implementation of facility fees. Facility prices can be positive or negative (price discounts), and can be adjusted to be all positive, or to provide net subsidy or net revenue. We contribute to unifying and generalizing several disparate streams of research.

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