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Dynamic capacity adjustments with reactive customers

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  • van Ackere, Ann
  • Haxholdt, Christian
  • Larsen, Erik R.

Abstract

In this paper we develop a behavioural model in which customers come and go based on their perception of waiting time (relative to other facilities) while managers gradually adjust the capacity of the facility based on their perception of demand. We explicitly account for the difference in access to information between existing and potential customers, which implies that the perception of potential customers lags the perception of current customers. We investigate the outcome of the interaction between these simultaneous dynamic decision processes, and in particular the impact of the lags created by the perception formation process and the time to implement desired changes in capacity. These multiple delays may result in customers and service provider being out of step: customers walk away just as the service provider manages to bring extra capacity online.

Suggested Citation

  • van Ackere, Ann & Haxholdt, Christian & Larsen, Erik R., 2013. "Dynamic capacity adjustments with reactive customers," Omega, Elsevier, vol. 41(4), pages 689-705.
  • Handle: RePEc:eee:jomega:v:41:y:2013:i:4:p:689-705
    DOI: 10.1016/j.omega.2012.09.007
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    References listed on IDEAS

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    1. Naor, P, 1969. "The Regulation of Queue Size by Levying Tolls," Econometrica, Econometric Society, vol. 37(1), pages 15-24, January.
    2. Luo, Wenhong & J. Liberatore, Matthew & L. Nydick, Robert & B. Chung, Q & Sloane, Elliot, 2004. "Impact of process change on customer perception of waiting time: a field study," Omega, Elsevier, vol. 32(1), pages 77-83, February.
    3. Ziv Carmon & J. George Shanthikumar & Tali F. Carmon, 1995. "A Psychological Perspective on Service Segmentation Models: The Significance of Accounting for Consumers' Perceptions of Waiting and Service," Management Science, INFORMS, vol. 41(11), pages 1806-1815, November.
    4. Zhou, Rongrong & Soman, Dilip, 2003. " Looking Back: Exploring the Psychology of Queuing and the Effect of the Number of People Behind," Journal of Consumer Research, Oxford University Press, vol. 29(4), pages 517-530, March.
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    7. van Ackere, Ann & Larsen, Erik R., 2004. "Self-organising behaviour in the presence of negative externalities: A conceptual model of commuter choice," European Journal of Operational Research, Elsevier, vol. 157(2), pages 501-513, September.
    8. Berends, P. A. J. & Romme, A. G. L., 2001. "Cyclicality of capital-intensive industries: a system dynamics simulation study of the paper industry," Omega, Elsevier, vol. 29(6), pages 543-552, December.
    9. Larsen, Erik R. & Morecroft, John D. W. & Thomsen, Jesper S., 1999. "Complex behaviour in a production-distribution model," European Journal of Operational Research, Elsevier, vol. 119(1), pages 61-74, November.
    10. Rogelio Oliva & John D. Sterman, 2001. "Cutting Corners and Working Overtime: Quality Erosion in the Service Industry," Management Science, INFORMS, vol. 47(7), pages 894-914, July.
    11. Sterman, John D., 1989. "Misperceptions of feedback in dynamic decision making," Organizational Behavior and Human Decision Processes, Elsevier, vol. 43(3), pages 301-335, June.
    12. Nie, Winter, 2000. "Waiting: integrating social and psychological perspectives in operations management," Omega, Elsevier, vol. 28(6), pages 611-629, December.
    13. Christian Haxholdt & Erik R. Larsen & Ann van Ackere, 2003. "Mode Locking and Chaos in a Deterministic Queueing Model with Feedback," Management Science, INFORMS, vol. 49(6), pages 816-830, June.
    14. Morecroft, John DW, 1983. "System dynamics: Portraying bounded rationality," Omega, Elsevier, vol. 11(2), pages 131-142.
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    Cited by:

    1. Ma, Xiaoyu & Deng, Tianhu & Xue, Mengying & Shen, Zuo-Jun Max & Lan, Boxiong, 2017. "Optimal dynamic pricing of mobile data plans in wireless communications," Omega, Elsevier, vol. 66(PA), pages 91-105.
    2. Klein, Robert & Kolb, Johannes, 2015. "Maximizing customer equity subject to capacity constraints," Omega, Elsevier, vol. 55(C), pages 111-125.
    3. Delgado-Alvarez, Carlos A. & van Ackere, Ann & Larsen, Erik R & Arango-Aramburo, Santiago, 2017. "Managing capacity at a service facility: An experimental approach," European Journal of Operational Research, Elsevier, vol. 259(1), pages 216-228.
    4. Mørch, Ove & Fagerholt, Kjetil & Pantuso, Giovanni & Rakke, Jørgen, 2017. "Maximizing the rate of return on the capital employed in shipping capacity renewal," Omega, Elsevier, vol. 67(C), pages 42-53.

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