Sensitivity of optimal prices to system parameters in a steady-state service facility
We consider the problem of maximizing the long-run average reward in a service facility with dynamic pricing. We investigate sensitivity of optimal pricing policies to the parameters of the service facility which is modelled as an M/M/s/K queueing system. Arrival process to the facility is Poisson with arrival rate a decreasing function of the price currently being charged by the facility. We prove structural results on the optimal pricing policies when the parameters in the facility change. Namely, we show that optimal prices decrease when the capacity of the facility or the number of servers in the facility increase. Under a reasonable assumption, we also show that optimal prices increase as the overall demand for the service provided by the facility increases or when the service rate of the facility decreases. We illustrate how these structural results simplify the required computational effort while finding the optimal policy.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sanjeev Dewan & Haim Mendelson, 1990. "User Delay Costs and Internal Pricing for a Service Facility," Management Science, INFORMS, vol. 36(12), pages 1502-1517, December.
- Knudsen, Niels Chr, 1972. "Individual and Social Optimization in a Multiserver Queue with a General Cost-Benefit Structure," Econometrica, Econometric Society, vol. 40(3), pages 515-28, May.
- Shaler Stidham, 1992. "Pricing and Capacity Decisions for a Service Facility: Stability and Multiple Local Optima," Management Science, INFORMS, vol. 38(8), pages 1121-1139, August.
- Albert Y. Ha, 1998. "Incentive-Compatible Pricing for a Service Facility with Joint Production and Congestion Externalities," Management Science, INFORMS, vol. 44(12-Part-1), pages 1623-1636, December.
- Edelson, Noel M & Hildebrand, David K, 1975. "Congestion Tolls for Poisson Queuing Processes," Econometrica, Econometric Society, vol. 43(1), pages 81-92, January.
When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:193:y:2009:i:1:p:120-128. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.