IDEAS home Printed from https://ideas.repec.org/a/inm/oropre/v57y2009i6p1438-1450.html
   My bibliography  Save this article

Revenue Optimization for a Make-to-Order Queue in an Uncertain Market Environment

Author

Listed:
  • Omar Besbes

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104)

  • Costis Maglaras

    (Graduate School of Business, Columbia University, New York, New York 10027)

Abstract

We consider a revenue-maximizing make-to-order manufacturer that serves a market of price- and delay-sensitive customers and operates in an environment in which the market size varies stochastically over time. A key feature of our analysis is that no model is assumed for the evolution of the market size. We analyze two main settings: (i) the size of the market is observable at any point in time; and (ii) the size of the market is not observable and hence cannot be used for decision making. We focus on high-volume systems that are characterized by large processing capacities and market sizes, and where the latter fluctuate on a slower timescale than that of the underlying production system dynamics. We develop an approach to tackle such problems that is based on an asymptotic analysis and that yields near-optimal policy recommendations for the original system via the solution of a stochastic fluid model.

Suggested Citation

  • Omar Besbes & Costis Maglaras, 2009. "Revenue Optimization for a Make-to-Order Queue in an Uncertain Market Environment," Operations Research, INFORMS, vol. 57(6), pages 1438-1450, December.
    • Handle: RePEc:inm:oropre:v:57:y:2009:i:6:p:1438-1450
    DOI: 10.1287/opre.1080.0645
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/opre.1080.0645
    Download Restriction: no
    File URL: https://libkey.io/10.1287/opre.1080.0645?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. David W. Low, 1974. "Optimal Dynamic Pricing Policies for an M / M / s Queue," Operations Research, INFORMS, vol. 22(3), pages 545-561, June.
    2. Naor, P, 1969. "The Regulation of Queue Size by Levying Tolls," Econometrica, Econometric Society, vol. 37(1), pages 15-24, January.
    3. Constantinos Maglaras & Assaf Zeevi, 2003. "Pricing and Capacity Sizing for Systems with Shared Resources: Approximate Solutions and Scaling Relations," Management Science, INFORMS, vol. 49(8), pages 1018-1038, August.
    4. Linda Green & Peter Kolesar, 1991. "The Pointwise Stationary Approximation for Queues with Nonstationary Arrivals," Management Science, INFORMS, vol. 37(1), pages 84-97, January.
    5. Guillermo Gallego & Garrett van Ryzin, 1994. "Optimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons," Management Science, INFORMS, vol. 40(8), pages 999-1020, August.
    6. 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.
    7. Constantinos Maglaras, 2006. "Revenue Management for a Multiclass Single-Server Queue via a Fluid Model Analysis," Operations Research, INFORMS, vol. 54(5), pages 914-932, October.
    8. Achal Bassamboo & J. Michael Harrison & Assaf Zeevi, 2006. "Design and Control of a Large Call Center: Asymptotic Analysis of an LP-Based Method," Operations Research, INFORMS, vol. 54(3), pages 419-435, June.
    9. John D. C. Little, 1966. "A Model of Adaptive Control of Promotional Spending," Operations Research, INFORMS, vol. 14(6), pages 1075-1097, December.
    10. Stanley Gershwin & Bariş Tan & Michael Veatch, 2009. "Production control with backlog-dependent demand," IISE Transactions, Taylor & Francis Journals, vol. 41(6), pages 511-523.
    11. Omar Besbes & Assaf Zeevi, 2009. "Dynamic Pricing Without Knowing the Demand Function: Risk Bounds and Near-Optimal Algorithms," Operations Research, INFORMS, vol. 57(6), pages 1407-1420, December.
    12. Jing-Sheng Song & Paul Zipkin, 1993. "Inventory Control in a Fluctuating Demand Environment," Operations Research, INFORMS, vol. 41(2), pages 351-370, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gregory Dobson & Tolga Tezcan & Vera Tilson, 2013. "Optimal Workflow Decisions for Investigators in Systems with Interruptions," Management Science, INFORMS, vol. 59(5), pages 1125-1141, May.
    2. Philipp Afèche & Barış Ata, 2013. "Bayesian Dynamic Pricing in Queueing Systems with Unknown Delay Cost Characteristics," Manufacturing & Service Operations Management, INFORMS, vol. 15(2), pages 292-304, May.
    3. Yiwei Chen & Vivek F. Farias, 2013. "Simple Policies for Dynamic Pricing with Imperfect Forecasts," Operations Research, INFORMS, vol. 61(3), pages 612-624, June.
    4. Jiaqi Zhou & Ilya O. Ryzhov, 2021. "Equilibrium analysis of observable express service with customer choice," Queueing Systems: Theory and Applications, Springer, vol. 99(3), pages 243-281, December.
    5. Omar Besbes & Denis Sauré, 2014. "Dynamic Pricing Strategies in the Presence of Demand Shifts," Manufacturing & Service Operations Management, INFORMS, vol. 16(4), pages 513-528, October.
    6. Yiwei Chen & Cong Shi, 2019. "Joint Pricing and Inventory Management with Strategic Customers," Operations Research, INFORMS, vol. 67(6), pages 1610-1627, November.
    7. Michael F. Kamali & Tolga Tezcan & Ozlem Yildiz, 2019. "When to Use Provider Triage in Emergency Departments," Management Science, INFORMS, vol. 65(3), pages 1003-1019, March.
    8. Yiwei Chen & Ming Hu, 2020. "Pricing and Matching with Forward-Looking Buyers and Sellers," Manufacturing & Service Operations Management, INFORMS, vol. 22(4), pages 717-734, July.
    9. Barış Ata & Xiaoshan Peng, 2020. "An Optimal Callback Policy for General Arrival Processes: A Pathwise Analysis," Operations Research, INFORMS, vol. 68(2), pages 327-347, March.
    10. Shiliang Cui & Senthil Veeraraghavan, 2016. "Blind Queues: The Impact of Consumer Beliefs on Revenues and Congestion," Management Science, INFORMS, vol. 62(12), pages 3656-3672, December.
    11. Pavlin, J. Michael, 2017. "Dual bounds of a service level assignment problem with applications to efficient pricing," European Journal of Operational Research, Elsevier, vol. 262(1), pages 239-250.
    12. Omar Besbes & Costis Maglaras, 2012. "Dynamic Pricing with Financial Milestones: Feedback-Form Policies," Management Science, INFORMS, vol. 58(9), pages 1715-1731, September.
    13. Pierre L’Ecuyer & Patrick Maillé & Nicolás E. Stier-Moses & Bruno Tuffin, 2017. "Revenue-Maximizing Rankings for Online Platforms with Quality-Sensitive Consumers," Operations Research, INFORMS, vol. 65(2), pages 408-423, April.
    14. Ying Chen & John J. Hasenbein, 2020. "Knowledge, congestion, and economics: Parameter uncertainty in Naor’s model," Queueing Systems: Theory and Applications, Springer, vol. 96(1), pages 83-99, October.
    15. Mustafa Akan & Barı ş Ata & Tava Olsen, 2012. "Congestion-Based Lead-Time Quotation for Heterogenous Customers with Convex-Concave Delay Costs: Optimality of a Cost-Balancing Policy Based on Convex Hull Functions," Operations Research, INFORMS, vol. 60(6), pages 1505-1519, December.
    16. Vibhanshu Abhishek & Mustafa Dogan & Alexandre Jacquillat, 2021. "Strategic Timing and Dynamic Pricing for Online Resource Allocation," Management Science, INFORMS, vol. 67(8), pages 4880-4907, August.
    17. Dragos Florin Ciocan & Vivek Farias, 2012. "Model Predictive Control for Dynamic Resource Allocation," Mathematics of Operations Research, INFORMS, vol. 37(3), pages 501-525, August.
    18. Adida, Elodie & Ratisoontorn, Nantaporn, 2011. "Consignment contracts with retail competition," European Journal of Operational Research, Elsevier, vol. 215(1), pages 136-148, November.
    19. Hassin, Refael & Haviv, Moshe & Oz, Binyamin, 2023. "Strategic behavior in queues with arrival rate uncertainty," European Journal of Operational Research, Elsevier, vol. 309(1), pages 217-224.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Vibhanshu Abhishek & Mustafa Dogan & Alexandre Jacquillat, 2021. "Strategic Timing and Dynamic Pricing for Online Resource Allocation," Management Science, INFORMS, vol. 67(8), pages 4880-4907, August.
    2. Moshe Haviv & Ramandeep S. Randhawa, 2014. "Pricing in Queues Without Demand Information," Manufacturing & Service Operations Management, INFORMS, vol. 16(3), pages 401-411, July.
    3. Sabri Çelik & Costis Maglaras, 2008. "Dynamic Pricing and Lead-Time Quotation for a Multiclass Make-to-Order Queue," Management Science, INFORMS, vol. 54(6), pages 1132-1146, June.
    4. Mustafa Akan & Barı ş Ata & Tava Olsen, 2012. "Congestion-Based Lead-Time Quotation for Heterogenous Customers with Convex-Concave Delay Costs: Optimality of a Cost-Balancing Policy Based on Convex Hull Functions," Operations Research, INFORMS, vol. 60(6), pages 1505-1519, December.
    5. Constantinos Maglaras, 2006. "Revenue Management for a Multiclass Single-Server Queue via a Fluid Model Analysis," Operations Research, INFORMS, vol. 54(5), pages 914-932, October.
    6. Yiwei Chen & Vivek F. Farias, 2013. "Simple Policies for Dynamic Pricing with Imperfect Forecasts," Operations Research, INFORMS, vol. 61(3), pages 612-624, June.
    7. Xinchang Wang & Sigrún Andradóttir & Hayriye Ayhan, 2019. "Optimal pricing for tandem queues with finite buffers," Queueing Systems: Theory and Applications, Springer, vol. 92(3), pages 323-396, August.
    8. Baric{s} Ata & Shiri Shneorson, 2006. "Dynamic Control of an M/M/1 Service System with Adjustable Arrival and Service Rates," Management Science, INFORMS, vol. 52(11), pages 1778-1791, November.
    9. Omar Besbes & Costis Maglaras, 2012. "Dynamic Pricing with Financial Milestones: Feedback-Form Policies," Management Science, INFORMS, vol. 58(9), pages 1715-1731, September.
    10. Constantinos Maglaras & Assaf Zeevi, 2005. "Pricing and Design of Differentiated Services: Approximate Analysis and Structural Insights," Operations Research, INFORMS, vol. 53(2), pages 242-262, April.
    11. Terry A. Taylor, 2018. "On-Demand Service Platforms," Manufacturing & Service Operations Management, INFORMS, vol. 20(4), pages 704-720, October.
    12. Philipp Afèche & Opher Baron & Yoav Kerner, 2013. "Pricing Time-Sensitive Services Based on Realized Performance," Manufacturing & Service Operations Management, INFORMS, vol. 15(3), pages 492-506, July.
    13. Arnoud den Boer & Ohad Perry & Bert Zwart, 2018. "Dynamic pricing policies for an inventory model with random windows of opportunities," Naval Research Logistics (NRL), John Wiley & Sons, vol. 65(8), pages 660-675, December.
    14. De Munck, Thomas & Chevalier, Philippe & Tancrez, Jean-Sébastien, 2023. "Managing priorities on on-demand service platforms with waiting time differentiation," International Journal of Production Economics, Elsevier, vol. 266(C).
    15. Xiao, Baichun & Yang, Wei, 2021. "A Bayesian learning model for estimating unknown demand parameter in revenue management," European Journal of Operational Research, Elsevier, vol. 293(1), pages 248-262.
    16. Qiuping Yu & Gad Allon & Achal Bassamboo & Seyed Iravani, 2018. "Managing Customer Expectations and Priorities in Service Systems," Management Science, INFORMS, vol. 64(8), pages 3942-3970, August.
    17. Parlakturk, Ali & Kumar, Sunil, 2004. "Self-Interested Routing in Queueing Networks," Research Papers 1782r, Stanford University, Graduate School of Business.
    18. Josef Broder & Paat Rusmevichientong, 2012. "Dynamic Pricing Under a General Parametric Choice Model," Operations Research, INFORMS, vol. 60(4), pages 965-980, August.
    19. Manlu Chen & Ming Hu & Jianfu Wang, 2022. "Food Delivery Service and Restaurant: Friend or Foe?," Management Science, INFORMS, vol. 68(9), pages 6539-6551, September.
    20. S. Rao & E. R. Petersen, 1998. "Optimal Pricing of Priority Services," Operations Research, INFORMS, vol. 46(1), pages 46-56, February.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:oropre:v:57:y:2009:i:6:p:1438-1450. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.