Pricing surplus server capacity for mean waiting time sensitive customers

Pricing surplus server capacity for mean waiting time sensitive customers

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Article ID: iaor20101884
Volume: 205
Issue: 1
Start Page Number: 159
End Page Number: 171
Publication Date: Aug 2010
Journal: European Journal of Operational Research
Authors: , ,
Abstract:

We consider a queueing model wherein the resource is shared by two different classes of customers, primary (existing) and secondary (new), under a service level based pricing contract. This contract between secondary class customers and resource manager specifies unit admission price and quality of service (QoS) offered. We assume that the secondary customers' Poisson arrival rate depends linearly on unit price and service level offered while the server uses a delay dependent priority queue management scheme. We analyze the joint problem of optimal pricing and operation of the resource with the inclusion of secondary class customers, while continuing to offer a pre-specified QoS to primary class customers. Our analysis leads to an algorithm that finds, in closed form expressions, the optimal points of the resulting non-convex constrained optimization problem. We also study in detail the structure and the non-linear nature of these optimal pricing and operating decisions.

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