Optimal Price/Lead-Time Menus for Queues with Customer Choice: Segmentation, Pooling, and Strategic Delay

Optimal Price/Lead-Time Menus for Queues with Customer Choice: Segmentation, Pooling, and Strategic Delay

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Article ID: iaor20164184
Volume: 62
Issue: 8
Start Page Number: 2412
End Page Number: 2436
Publication Date: Aug 2016
Journal: Management Science
Authors: ,
Keywords: marketing, decision, scheduling, combinatorial optimization, information
Abstract:

How should a firm design a price/lead‐time menu and scheduling policy to maximize revenues from heterogeneous time‐sensitive customers with private information about their preferences? We consider a queueing system with multiple customer types that differ in their valuations for instant delivery and their delay costs. The distinctive feature of our model is that the ranking of customer preferences depends on lead times: patient customers are willing to pay more than impatient customers for long lead times, and vice versa for speedier service. We provide necessary and sufficient conditions, in terms of the capacity, the market size, and the properties of the valuation‐delay cost distribution, for three features of the optimal menu and segmentation: pricing out the middle of the delay cost spectrum while serving both ends, pooling types with different delay costs into a single class, and strategic delay to deliberately inflate lead times. This paper was accepted by Assaf Zeevi, stochastic models and simulation.

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