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Price and speed decisions in customer-intensive services with two classes of customers

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  • Ni, Guanqun
  • Xu, Yinfeng
  • Dong, Yucheng
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    Abstract

    In many customer-intensive services, the perceived quality of service decreases in the speed of service. Usually, an increase in service speed induces different marginal reductions in quality for heterogeneous customers. To bring insight into the managerial implications of this difference, we classify customers in terms of intensity parameters, and investigate the behavior of each class of customers in a queueing framework. The optimal service speed and price are derived to maximize service provider’s revenue. Our results demonstrate that no class is always attractive to the provider, and thus there are usually several combinations of service price and speed reaching the same maximal revenue. Moreover, under some mild conditions, the provider could gain more revenue by treating different classes with discrimination than by adopting uniform treatment.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0377221713001161
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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 228 (2013)
    Issue (Month): 2 ()
    Pages: 427-436

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    Handle: RePEc:eee:ejores:v:228:y:2013:i:2:p:427-436

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: OR in service industries; Queueing theory; Pricing and revenue management;

    References

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    1. Armony, Mor & Haviv, Moshe, 2003. "Price and delay competition between two service providers," European Journal of Operational Research, Elsevier, vol. 147(1), pages 32-50, May.
    2. Wallace J. Hopp & Seyed M. R. Iravani & Gigi Y. Yuen, 2007. "Operations Systems with Discretionary Task Completion," Management Science, INFORMS, vol. 53(1), pages 61-77, January.
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    6. Reitman, David, 1991. "Endogenous Quality Differentiation in Congested Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 39(6), pages 621-47, December.
    7. Krishnan S. Anand & M. Faz{\i}l Paç & Senthil Veeraraghavan, 2011. "Quality-Speed Conundrum: Trade-offs in Customer-Intensive Services," Management Science, INFORMS, vol. 57(1), pages 40-56, January.
    8. Levhari, David & Luski, Israel, 1978. "Duopoly pricing and waiting lines," European Economic Review, Elsevier, vol. 11(1), pages 17-35, February.
    9. Wang, Qinan, 2004. "Modeling and analysis of high risk patient queues," European Journal of Operational Research, Elsevier, vol. 155(2), pages 502-515, June.
    10. Wang, Xiaofang & Zhuang, Jun, 2011. "Balancing congestion and security in the presence of strategic applicants with private information," European Journal of Operational Research, Elsevier, vol. 212(1), pages 100-111, July.
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