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Monopoly Pricing When Customers Queue

Author

Listed:
  • Hong Chen

    (University of British Columbia)

  • Murray Frank

    (University of British Columbia and Hong Kong University of Science and Technology)

Abstract

It takes time to process purchases and as a result a queue of customers may form. The pricing and service rate decissions of a monopolist who must take this into account are characterized. We find that an increase in the average number of customers arriving in the market either has no effect on the monopoly price, or else causes the monopolist to reduce the price in the short run. In the long run the monopolist will increase the service rate and raise the price. When customer preferences are linear the equilibrium is socially efficient. When preferences are not linear equilibrium will not normally be socially efficient.

Suggested Citation

  • Hong Chen & Murray Frank, 1995. "Monopoly Pricing When Customers Queue," Industrial Organization 9504001, EconWPA.
  • Handle: RePEc:wpa:wuwpio:9504001 Note: 298333 bytes postscript file created with Latex. 34 page including the titlepage. Keywords: Queue, Monopoly, Customer Information, Service Rate, Social Welfare
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    References listed on IDEAS

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    4. Chou, Chien-fu & Shy, Oz, 1990. "Network effects without network externalities," International Journal of Industrial Organization, Elsevier, vol. 8(2), pages 259-270, June.
    5. Arthur, W Brian, 1989. "Competing Technologies, Increasing Returns, and Lock-In by Historical Events," Economic Journal, Royal Economic Society, vol. 99(394), pages 116-131, March.
    6. Joseph Farrell & Garth Saloner, 1985. "Installed Base and Compatibility With Implications for Product Preannouncements," Working papers 385, Massachusetts Institute of Technology (MIT), Department of Economics.
    7. Katz, Michael L & Shapiro, Carl, 1986. "Technology Adoption in the Presence of Network Externalities," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 822-841, August.
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    Cited by:

    1. Gérard P. Cachon & Pnina Feldman, 2011. "Pricing Services Subject to Congestion: Charge Per-Use Fees or Sell Subscriptions?," Manufacturing & Service Operations Management, INFORMS, vol. 13(2), pages 244-260, June.
    2. Krishnan S. Anand & M. Faz{i}l Paç & Senthil Veeraraghavan, 2011. "Quality-Speed Conundrum: Trade-offs in Customer-Intensive Services," Management Science, INFORMS, vol. 57(1), pages 40-56, January.
    3. Zhou, Wenhui & Lian, Zhaotong & Wu, Jinbiao, 2014. "When should service firms provide free experience service?," European Journal of Operational Research, Elsevier, vol. 234(3), pages 830-838.

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    JEL classification:

    • L - Industrial Organization

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