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Reservation Policies in Queues: Advance Deposits, Spot Prices, and Capacity Allocation

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  • Jaelynn Oh
  • Xuanming Su

Abstract

At firms such as restaurants, customers either make reservations in advance or join queues on the spot. Reservation holders may not show up, and walk†ins have to wait. Using a game†theoretic model between the firm and customers, this paper studies the following: (i) reservation deposits and service prices, and (ii) capacity allocation between reservations and walk†ins. We have three main results: (i) When reservation no†shows lead to wasted capacity that cannot be reallocated, the firm should front†load all charges into the reservation deposit; (ii) The firm should charge a lower service price to reservation†holders than to walk†in customers when it decides to serve both; (iii) Less capacity should be allocated for reservations as the potential market size grows; with sufficiently large potential demand, the firm should stop taking reservations. Our results follow from key operational tradeoffs between reservations and queues: reservations permit 100% utilization, but queues operate at less than 100%; however, reservations have constant returns to scale, while queues enjoy increasing returns.

Suggested Citation

  • Jaelynn Oh & Xuanming Su, 2018. "Reservation Policies in Queues: Advance Deposits, Spot Prices, and Capacity Allocation," Production and Operations Management, Production and Operations Management Society, vol. 27(4), pages 680-695, April.
    • Handle: RePEc:bla:popmgt:v:27:y:2018:i:4:p:680-695
    DOI: 10.1111/poms.12821
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    Citations

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    Cited by:

    1. Dominik Schreyer, 2019. "Football spectator no-show behaviour in the German Bundesliga," Applied Economics, Taylor & Francis Journals, vol. 51(45), pages 4882-4901, September.
    2. Wen Zhang & Weizhe Yang, 2021. "Optimal pre-order strategy with delay in payments," Annals of Operations Research, Springer, vol. 305(1), pages 347-374, October.
    3. Jaelynn Oh & Xuanming Su, 2022. "Optimal Pricing and Overbooking of Reservations," Production and Operations Management, Production and Operations Management Society, vol. 31(3), pages 928-940, March.
    4. Zhong-Ping Li & Jian-Jun Wang & Ai-Chih Chang & Jim Shi, 2021. "Capacity reallocation via sinking high-quality resource in a hierarchical healthcare system," Annals of Operations Research, Springer, vol. 300(1), pages 97-135, May.
    5. Zhang, Guoquan & Li, Guohao & Shang, Jennifer, 2023. "Optimizing mixed bundle pricing strategy: Advance selling and consumer regret," Omega, Elsevier, vol. 115(C).
    6. Morgan Swink & Kejia Hu & Xiande Zhao, 2022. "Analytics applications, limitations, and opportunities in restaurant supply chains," Production and Operations Management, Production and Operations Management Society, vol. 31(10), pages 3710-3726, October.
    7. Yawen Zhang & Bo Li & Xue Chen & Shuang Wu, 2020. "Online advance selling or not: Pricing strategy of new product entry in a supply chain," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(8), pages 1446-1461, December.
    8. Chamberlain, Jonathan & Simhon, Eran & Starobinski, David, 2021. "Preemptible queues with advance reservations: Strategic behavior and revenue management," European Journal of Operational Research, Elsevier, vol. 293(2), pages 561-578.
    9. Debjit Roy & Eirini Spiliotopoulou & Jelle de Vries, 2022. "Restaurant analytics: Emerging practice and research opportunities," Production and Operations Management, Production and Operations Management Society, vol. 31(10), pages 3687-3709, October.
    10. Manuel A. Nunez & Xue Bai & Linna Du, 2021. "Leveraging Slack Capacity in IaaS Contract Cloud Services," Production and Operations Management, Production and Operations Management Society, vol. 30(4), pages 883-901, April.
    11. Wang, Jian-Jun & Li, Zhong-Ping & Shi, Jim (Junmin) & Chang, Ai-Chih (Jasmine), 2021. "Hospital referral and capacity strategies in the two-tier healthcare systems," Omega, Elsevier, vol. 100(C).
    12. Yuan, Xuchuan & Brian Hwarng, H., 2023. "Examining the dynamics of reactive capacity allocation through a chaos lens," European Journal of Operational Research, Elsevier, vol. 308(2), pages 912-928.
    13. Dominik Schreyer & Sascha L. Schmidt & Benno Torgler, 2020. "Using reminders with different reward opportunities to reduce no-show behavior: Empirical evidence from a large-scale field experiment in professional sport," CREMA Working Paper Series 2020-19, Center for Research in Economics, Management and the Arts (CREMA).

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