IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v234y2014i3p830-838.html
   My bibliography  Save this article

When should service firms provide free experience service?

Author

Listed:
  • Zhou, Wenhui
  • Lian, Zhaotong
  • Wu, Jinbiao

Abstract

By providing a free experience service, a service firm can attract more uninformed customers. However, it could reversely effect the delay-sensitive, informed customers’ decision. In this paper, we study a priority queueing system with free experience services. We study the customer behavior in equilibrium after we derive the expected customer waiting time. We then construct the service firm’s revenue function and obtain an optimal strategy for the service firm. Our results suggest that when the market size of informed customers is relatively small, the firm should consider providing free experience services for uninformed customers. Conversely, if the demand rate of potential informed customers is quite high, the firm should ignore uninformed customers.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:ejores:v:234:y:2014:i:3:p:830-838
    DOI: 10.1016/j.ejor.2013.10.036
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S037722171300859X
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejor.2013.10.036?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
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Dennis W. Carlton & Judith A. Chevalier, 2001. "Free Riding and Sales Strategies for the Internet," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 441-461, December.
    2. Steven A. Lippman & Shaler Stidham, 1977. "Individual versus Social Optimization in Exponential Congestion Systems," Operations Research, INFORMS, vol. 25(2), pages 233-247, April.
    3. Hong Chen & Murray Frank, 1995. "Monopoly Pricing When Customers Queue," Industrial Organization 9504001, University Library of Munich, Germany.
    4. 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.
    5. Jiwoong Shin, 2007. "How Does Free Riding on Customer Service Affect Competition?," Marketing Science, INFORMS, vol. 26(4), pages 488-503, 07-08.
    6. De Vany, Arthur S, 1976. "Uncertainty, Waiting Time, and Capacity Utilization: A Stochastic Theory of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 84(3), pages 523-541, June.
    7. Leon Yang Chu & Hao Zhang, 2011. "Optimal Preorder Strategy with Endogenous Information Control," Management Science, INFORMS, vol. 57(6), pages 1055-1077, June.
    8. Hassin, Refael, 1986. "Consumer Information in Markets with Random Product Quality: The Case of Queues and Balking," Econometrica, Econometric Society, vol. 54(5), pages 1185-1195, September.
    9. Edelson, Noel M & Hildebrand, David K, 1975. "Congestion Tolls for Poisson Queuing Processes," Econometrica, Econometric Society, vol. 43(1), pages 81-92, January.
    10. Gong, Qiguo & Lai, K.K. & Wang, Shouyang, 2008. "Supply chain networks: Closed Jackson network models and properties," International Journal of Production Economics, Elsevier, vol. 113(2), pages 567-574, June.
    11. Shaler Stidham, 1992. "Pricing and Capacity Decisions for a Service Facility: Stability and Multiple Local Optima," Management Science, INFORMS, vol. 38(8), pages 1121-1139, August.
    12. Naor, P, 1969. "The Regulation of Queue Size by Levying Tolls," Econometrica, Econometric Society, vol. 37(1), pages 15-24, January.
    13. Gregory S. Crawford & Matthew Shum, 2005. "Uncertainty and Learning in Pharmaceutical Demand," Econometrica, Econometric Society, vol. 73(4), pages 1137-1173, July.
    14. repec:bla:jindec:v:49:y:2001:i:4:p:441-61 is not listed on IDEAS
    15. Daniel A. Ackerberg, 2003. "Advertising, learning, and consumer choice in experience good markets: an empirical examination," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(3), pages 1007-1040, August.
    16. Guo, Pengfei & Sun, Wei & Wang, Yulan, 2011. "Equilibrium and optimal strategies to join a queue with partial information on service times," European Journal of Operational Research, Elsevier, vol. 214(2), pages 284-297, October.
    17. Knudsen, Niels Chr, 1972. "Individual and Social Optimization in a Multiserver Queue with a General Cost-Benefit Structure," Econometrica, Econometric Society, vol. 40(3), pages 515-528, May.
    18. Wang, Jinting & Zhang, Feng, 2013. "Strategic joining in M/M/1 retrial queues," European Journal of Operational Research, Elsevier, vol. 230(1), pages 76-87.
    19. Boudali, Olga & Economou, Antonis, 2012. "Optimal and equilibrium balking strategies in the single server Markovian queue with catastrophes," European Journal of Operational Research, Elsevier, vol. 218(3), pages 708-715.
    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. Ying Shi & Xin Li & Ping Fan, 2016. "Optimization of an M/M/∞ Queueing System with Free Experience Service," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 33(06), pages 1-17, December.
    2. Youxin Liu & Liwei Liu & Tao Jiang & Xudong Chai, 2024. "Strategic Queueing Behavior of Two Groups of Patients in a Healthcare System," Mathematics, MDPI, vol. 12(10), pages 1-21, May.
    3. Shi, Ying & Lian, Zhaotong, 2016. "Optimization and strategic behavior in a passenger–taxi service system," European Journal of Operational Research, Elsevier, vol. 249(3), pages 1024-1032.
    4. 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.
    5. Jinting Wang & Ke Sun, 2022. "Optimal pricing and capacity sizing for online service systems with free trials," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 44(1), pages 57-86, March.

    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. 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.
    2. Shone, Rob & Knight, Vincent A. & Williams, Janet E., 2013. "Comparisons between observable and unobservable M/M/1 queues with respect to optimal customer behavior," European Journal of Operational Research, Elsevier, vol. 227(1), pages 133-141.
    3. Ying Shi & Xin Li & Ping Fan, 2016. "Optimization of an M/M/∞ Queueing System with Free Experience Service," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 33(06), pages 1-17, December.
    4. Knight, Vincent A. & Harper, Paul R., 2013. "Selfish routing in public services," European Journal of Operational Research, Elsevier, vol. 230(1), pages 122-132.
    5. Sumita, Ushio & Masuda, Yasushi & Yamakawa, Shigetaka, 2001. "Optimal internal pricing and capacity planning for service facility with finite buffer," European Journal of Operational Research, Elsevier, vol. 128(1), pages 192-205, January.
    6. Refael Hassin & Ran I. Snitkovsky, 2020. "Social and Monopoly Optimization in Observable Queues," Operations Research, INFORMS, vol. 68(4), pages 1178-1198, July.
    7. Larsen, Christian, 1998. "Investigating sensitivity and the impact of information on pricing decisions in an M/M/1/ [infinity] queueing model," International Journal of Production Economics, Elsevier, vol. 56(1), pages 365-377, September.
    8. Canbolat, Pelin G., 2020. "Bounded rationality in clearing service systems," European Journal of Operational Research, Elsevier, vol. 282(2), pages 614-626.
    9. Jalili Marand, Ata & Tang, Ou & Li, Hongyan, 2019. "Quandary of service logistics: Fast or reliable?," European Journal of Operational Research, Elsevier, vol. 275(3), pages 983-996.
    10. Tingliang Huang & Gad Allon & Achal Bassamboo, 2013. "Bounded Rationality in Service Systems," Manufacturing & Service Operations Management, INFORMS, vol. 15(2), pages 263-279, May.
    11. Opher Baron & Antonis Economou & Athanasia Manou, 2022. "Increasing social welfare with delays: Strategic customers in the M/G/1 orbit queue," Production and Operations Management, Production and Operations Management Society, vol. 31(7), pages 2907-2924, July.
    12. Gérard P. Cachon & Patrick T. Harker, 2002. "Competition and Outsourcing with Scale Economies," Management Science, INFORMS, vol. 48(10), pages 1314-1333, October.
    13. 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.
    14. Benioudakis, Myron & Burnetas, Apostolos & Ioannou, George, 2021. "Lead-time quotations in unobservable make-to-order systems with strategic customers: Risk aversion, load control and profit maximization," European Journal of Operational Research, Elsevier, vol. 289(1), pages 165-176.
    15. Zhang, Zhe George & Yin, Xiaoling, 2021. "Information and pricing effects in two-tier public service systems," International Journal of Production Economics, Elsevier, vol. 231(C).
    16. Li, Xin & Chen, Hsing Hung & Tao, Xiangnan, 2016. "Pricing and capacity allocation in renewable energy," Applied Energy, Elsevier, vol. 179(C), pages 1097-1105.
    17. Refael Hassin & Ricky Roet-Green, 2017. "The Impact of Inspection Cost on Equilibrium, Revenue, and Social Welfare in a Single-Server Queue," Operations Research, INFORMS, vol. 65(3), pages 804-820, June.
    18. Ziani, Sofiane & Rahmoune, Fazia & Radjef, Mohammed Said, 2015. "Customers’ strategic behavior in batch arrivals M2/M/1 queue," European Journal of Operational Research, Elsevier, vol. 247(3), pages 895-903.
    19. Rouba Ibrahim, 2018. "Sharing delay information in service systems: a literature survey," Queueing Systems: Theory and Applications, Springer, vol. 89(1), pages 49-79, June.
    20. Bountali, Olga & Economou, Antonis, 2017. "Equilibrium joining strategies in batch service queueing systems," European Journal of Operational Research, Elsevier, vol. 260(3), pages 1142-1151.

    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:eee:ejores:v:234:y:2014:i:3:p:830-838. 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    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.