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Price and Service Discrimination in Queuing Systems: Incentive Compatibility of Gc\mu Scheduling


  • Jan A. Van Mieghem

    () (Kellogg Graduate School of Management, Northwestern University, Evanston, Illinois 60208)


This article studies the optimal prices and service quality grades that a queuing system---the "firm"---provides to heterogeneous, utility-maximizing customers who measure quality by their experienced delay distributions. Results are threefold: First, delay cost curves are introduced that allow for a flexible description of a customer's quality sensitivity. Second, a comprehensive executable approach is proposed that analytically specifies scheduling, delay distributions and prices for arbitrary delay sensitivity curves. The tractability of this approach derives from porting heavy-traffic Brownian results into the economic analysis. The generalized c\mu (Gc\mu ) scheduling rule that emerges is dynamic so that, in general, service grades need not correspond to a static priority ranking. A benchmarking example investigates the value of differentiated service. Third, the notions of grade and rate incentive compatibility (IC) are introduced to study this system under asymmetric information and are established for Gc\mu scheduling when service times are homogeneous and customers atomistic. Grade IC induces correct grade choice resulting in perfect service discrimination; rate IC additionally induces centralized-optimal rates. Dynamic Gc\mu scheduling exhibits negative feedback that, together with time-dependent pricing, can also yield rate incentive compatibility with heterogeneous service times. Finally, multiplan pricing, which offers all customers a menu with a choice of multiple rate plans, is analyzed.

Suggested Citation

  • Jan A. Van Mieghem, 2000. "Price and Service Discrimination in Queuing Systems: Incentive Compatibility of Gc\mu Scheduling," Management Science, INFORMS, vol. 46(9), pages 1249-1267, September.
  • Handle: RePEc:inm:ormnsc:v:46:y:2000:i:9:p:1249-1267

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    References listed on IDEAS

    1. 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.
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    Cited by:

    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. Lauren Xiaoyuan Lu & Jan A. Van Mieghem & R. Canan Savaskan, 2009. "Incentives for Quality Through Endogenous Routing," Manufacturing & Service Operations Management, INFORMS, vol. 11(2), pages 254-273, July.
    3. 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.
    4. Weixin Shang & Liming Liu, 2011. "Promised Delivery Time and Capacity Games in Time-Based Competition," Management Science, INFORMS, vol. 57(3), pages 599-610, March.
    5. Roland T. Rust & Tuck Siong Chung, 2006. "Marketing Models of Service and Relationships," Marketing Science, INFORMS, vol. 25(6), pages 560-580, 11-12.
    6. Ali K. Parlaktürk & Sunil Kumar, 2004. "Self-Interested Routing in Queueing Networks," Management Science, INFORMS, vol. 50(7), pages 949-966, July.
    7. Xuanming Su & Stefanos Zenios, 2004. "Patient Choice in Kidney Allocation: The Role of the Queueing Discipline," Manufacturing & Service Operations Management, INFORMS, vol. 6(4), pages 280-301, June.
    8. Mor Armony & Erica Plambeck & Sridhar Seshadri, 2009. "Sensitivity of Optimal Capacity to Customer Impatience in an Unobservable M/M/S Queue (Why You Shouldn't Shout at the DMV)," Manufacturing & Service Operations Management, INFORMS, vol. 11(1), pages 19-32, June.
    9. repec:eee:ejores:v:262:y:2017:i:1:p:239-250 is not listed on IDEAS
    10. Liu, Tieming & Methapatara, Chinnatat & Wynter, Laura, 2010. "Revenue management model for on-demand IT services," European Journal of Operational Research, Elsevier, vol. 207(1), pages 401-408, November.
    11. Bar{i}c{s} Ata & Jan A. Van Mieghem, 2009. "The Value of Partial Resource Pooling: Should a Service Network Be Integrated or Product-Focused?," Management Science, INFORMS, vol. 55(1), pages 115-131, January.
    12. Albert Y. Ha, 2001. "Optimal Pricing That Coordinates Queues with Customer-Chosen Service Requirements," Management Science, INFORMS, vol. 47(7), pages 915-930, July.
    13. Noah Gans, 2002. "Customer Loyalty and Supplier Quality Competition," Management Science, INFORMS, vol. 48(2), pages 207-221, February.
    14. Jiang, Li & Geunes, Joseph, 2006. "Impact of introducing make-to-order options in a make-to-stock environment," European Journal of Operational Research, Elsevier, vol. 174(2), pages 724-743, October.
    15. Yong Tan & Vijay S. Mookerjee, 2005. "Allocating Spending Between Advertising and Information Technology in Electronic Retailing," Management Science, INFORMS, vol. 51(8), pages 1236-1249, August.
    16. repec:eee:ejores:v:266:y:2018:i:3:p:1025-1037 is not listed on IDEAS
    17. Evrim D. Günec{s} & O. Zeynep Akc{s}in, 2004. "Value Creation in Service Delivery: Relating Market Segmentation, Incentives, and Operational Performance," Manufacturing & Service Operations Management, INFORMS, vol. 6(4), pages 338-357, May.


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