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Optimal Incentive-Compatible Priority Pricing for the M/M/1 Queue

Author

Listed:
  • Haim Mendelson

    (University of Rochester, Rochester, New York)

  • Seungjin Whang

    (Stanford University, Stanford, California)

Abstract

Consider a system that is modeled as an M/M/1 queueing system with multiple user classes. Each class is characterized by its delay cost per unit of time, its expected service time and its demand function. This paper derives a pricing mechanism which is optimal and incentive-compatible in the sense that the arrival rates and execution priorities jointly maximize the expected net value of the system while being determined, on a decentralized basis, by individual users. A closed-form expression for the resulting price structure is presented and studied.

Suggested Citation

  • Haim Mendelson & Seungjin Whang, 1990. "Optimal Incentive-Compatible Priority Pricing for the M/M/1 Queue," Operations Research, INFORMS, vol. 38(5), pages 870-883, October.
  • Handle: RePEc:inm:oropre:v:38:y:1990:i:5:p:870-883
    DOI: 10.1287/opre.38.5.870
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