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Monopoly Pricing When Customers Queue

Author

Listed:
  • Hong Chen

    (University of British Columbia)

  • Murray Frank

    (University of British Columbia and Hong Kong University of Science and Technology)

Abstract

It takes time to process purchases and as a result a queue of customers may form. The pricing and service rate decissions of a monopolist who must take this into account are characterized. We find that an increase in the average number of customers arriving in the market either has no effect on the monopoly price, or else causes the monopolist to reduce the price in the short run. In the long run the monopolist will increase the service rate and raise the price. When customer preferences are linear the equilibrium is socially efficient. When preferences are not linear equilibrium will not normally be socially efficient.

Suggested Citation

  • Hong Chen & Murray Frank, 1995. "Monopoly Pricing When Customers Queue," Industrial Organization 9504001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:9504001
    Note: 298333 bytes postscript file created with Latex. 34 page including the titlepage. Keywords: Queue, Monopoly, Customer Information, Service Rate, Social Welfare
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    Citations

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    Cited by:

    1. Bodas, Tejas & Manjunath, D., 2019. "Revenue maximization in service systems with heterogeneous customers," European Journal of Operational Research, Elsevier, vol. 278(2), pages 686-698.
    2. Ying Shi & Xin Li & Ping Fan, 2016. "Optimization of an M/M/∞ Queueing System with Free Experience Service," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 33(06), pages 1-17, December.
    3. Rouba Ibrahim, 2018. "Sharing delay information in service systems: a literature survey," Queueing Systems: Theory and Applications, Springer, vol. 89(1), pages 49-79, June.
    4. Zhongbin Wang & Jinting Wang, 2019. "Information heterogeneity in a retrial queue: throughput and social welfare maximization," Queueing Systems: Theory and Applications, Springer, vol. 92(1), pages 131-172, June.
    5. Vasco F. Alves, 2019. "Pricing and waiting time decisions in a health care market with private and public provision," Journal of Applied Economics, Taylor & Francis Journals, vol. 22(1), pages 174-195, January.
    6. Jianfu Wang & Ming Hu, 2020. "Efficient Inaccuracy: User-Generated Information Sharing in a Queue," Management Science, INFORMS, vol. 66(10), pages 4648-4666, October.
    7. Zhou, Wenhui & Lian, Zhaotong & Wu, Jinbiao, 2014. "When should service firms provide free experience service?," European Journal of Operational Research, Elsevier, vol. 234(3), pages 830-838.
    8. Refael Hassin & Ran I. Snitkovsky, 2020. "Social and Monopoly Optimization in Observable Queues," Operations Research, INFORMS, vol. 68(4), pages 1178-1198, July.
    9. Refael Hassin & Ricky Roet-Green, 2017. "The Impact of Inspection Cost on Equilibrium, Revenue, and Social Welfare in a Single-Server Queue," Operations Research, INFORMS, vol. 65(3), pages 804-820, June.
    10. Vasiliki Kostami, 2020. "Price and Lead time Disclosure Strategies in Inventory Systems," Production and Operations Management, Production and Operations Management Society, vol. 29(12), pages 2760-2788, December.
    11. Lian, Zhaotong & Gu, Xinhua & Wu, Jinbiao, 2016. "A re-examination of experience service offering and regular service pricing under profit maximization," European Journal of Operational Research, Elsevier, vol. 254(3), pages 907-915.
    12. Jalili Marand, Ata & Tang, Ou & Li, Hongyan, 2019. "Quandary of service logistics: Fast or reliable?," European Journal of Operational Research, Elsevier, vol. 275(3), pages 983-996.
    13. Canbolat, Pelin G., 2020. "Bounded rationality in clearing service systems," European Journal of Operational Research, Elsevier, vol. 282(2), pages 614-626.
    14. Gérard P. Cachon & Pnina Feldman, 2011. "Pricing Services Subject to Congestion: Charge Per-Use Fees or Sell Subscriptions?," Manufacturing & Service Operations Management, INFORMS, vol. 13(2), pages 244-260, June.
    15. Caner Canyakmaz & Tamer Boyaci, 2018. "Queueing systems with rationally inattentive customers," ESMT Research Working Papers ESMT-18-04_R1, ESMT European School of Management and Technology, revised 01 Oct 2020.
    16. Terry A. Taylor, 2018. "On-Demand Service Platforms," Manufacturing & Service Operations Management, INFORMS, vol. 20(4), pages 704-720, October.
    17. Balaraman Rajan & Tolga Tezcan & Abraham Seidmann, 2019. "Service Systems with Heterogeneous Customers: Investigating the Effect of Telemedicine on Chronic Care," Management Science, INFORMS, vol. 65(3), pages 1236-1267, March.
    18. 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.
    19. Caner Canyakmaz & Tamer Boyaci, 2018. "Opaque queues: Service systems with rationally inattentive customers," ESMT Research Working Papers ESMT-18-04, ESMT European School of Management and Technology.
    20. Shiliang Cui & Zhongbin Wang & Luyi Yang, 2020. "The Economics of Line-Sitting," Management Science, INFORMS, vol. 66(1), pages 227-242, January.

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    JEL classification:

    • L - Industrial Organization

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