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An optimal mechanism charging for priority in a queue

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  • Moshe Haviv
  • Eyal Winter

Abstract

We derive a revenue-maximizing scheme that charges customers who are homogeneous with respect to their waiting cost parameter for a random fee in order to become premium customers. This scheme incentivizes all customers to purchase priority, each at his/her drawn price. We also design a revenue-maximizing scheme for the case where customers are heterogeneous with respect to their waiting cost parameter. Now lower cost parameter customers are encouraged to join the premium class at a low price: Given that, those with high cost parameter would be willing to pay even more for this privilege.

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  • Moshe Haviv & Eyal Winter, 2020. "An optimal mechanism charging for priority in a queue," Papers 2002.06533, arXiv.org.
    • Handle: RePEc:arx:papers:2002.06533
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    File URL: http://arxiv.org/pdf/2002.06533
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    References listed on IDEAS

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    1. Philipp Afèche & Haim Mendelson, 2004. "Pricing and Priority Auctions in Queueing Systems with a Generalized Delay Cost Structure," Management Science, INFORMS, vol. 50(7), pages 869-882, July.
    2. Haim Mendelson & Seungjin Whang, 1990. "Optimal Incentive-Compatible Priority Pricing for the M/M/1 Queue," Operations Research, INFORMS, vol. 38(5), pages 870-883, October.
    3. Moshe Haviv & Liron Ravner, 2016. "Strategic bidding in an accumulating priority queue: equilibrium analysis," Annals of Operations Research, Springer, vol. 244(2), pages 505-523, September.
    4. Rafael Hassin, 1995. "Decentralized Regulation of a Queue," Management Science, INFORMS, vol. 41(1), pages 163-173, January.
    5. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
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    Cited by:

    1. Moshe, Shir & Oz, Binyamin, 2023. "Charging more for priority via two-part tariff for accumulating priorities," European Journal of Operational Research, Elsevier, vol. 304(2), pages 652-660.
    2. Adam Kaizer & Tomasz Neumann, 2021. "The Model of Support for the Decision-Making Process, While Organizing Dredging Works in the Ports," Energies, MDPI, vol. 14(9), pages 1-15, May.
    3. Sun, Wei & Zhang, Zhiyuan & Xie, Xumeng & Li, Shiyong, 2024. "Heterogeneity of delay information and revenue-cost structure in a multi-server queue with threshold policy: Customer behaviors and optimization," Applied Mathematics and Computation, Elsevier, vol. 465(C).

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