IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v289y2021i1p165-176.html
   My bibliography  Save this article

Lead-time quotations in unobservable make-to-order systems with strategic customers: Risk aversion, load control and profit maximization

Author

Listed:
  • Benioudakis, Myron
  • Burnetas, Apostolos
  • Ioannou, George

Abstract

We develop a model for pricing, lead-time quotation and delay compensation in a Markovian make-to-order production or service system with strategic customers who exhibit risk aversion. Based on a concave utility function of their net benefit, customers make individual decisions to join the system or balk without observing the state of the queue. The decisions of arriving customers result in a symmetric join/balk game. Regarding the firm’s strategy, the provider announces a fixed entrance fee, a lead-time quotation and a compensation rate for the part of a customer delay which exceeds the quoted lead-time.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:ejores:v:289:y:2021:i:1:p:165-176
    DOI: 10.1016/j.ejor.2020.06.047
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377221720306081
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejor.2020.06.047?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. 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.
    2. Slotnick, Susan A. & Sobel, Matthew J., 2005. "Manufacturing lead-time rules: Customer retention versus tardiness costs," European Journal of Operational Research, Elsevier, vol. 163(3), pages 825-856, June.
    3. Philipp Afèche & J. Michael Pavlin, 2016. "Optimal Price/Lead-Time Menus for Queues with Customer Choice: Segmentation, Pooling, and Strategic Delay," Management Science, INFORMS, vol. 62(8), pages 2412-2436, August.
    4. 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.
    5. Erica L. Plambeck, 2004. "Optimal Leadtime Differentiation via Diffusion Approximations," Operations Research, INFORMS, vol. 52(2), pages 213-228, April.
    6. Edelson, Noel M & Hildebrand, David K, 1975. "Congestion Tolls for Poisson Queuing Processes," Econometrica, Econometric Society, vol. 43(1), pages 81-92, January.
    7. David W. Low, 1974. "Optimal Dynamic Pricing Policies for an M / M / s Queue," Operations Research, INFORMS, vol. 22(3), pages 545-561, June.
    8. Feng, Jiejian & Zhang, Michael, 2017. "Dynamic quotation of leadtime and price for a Make-To-Order system with multiple customer classes and perfect information on customer preferences," European Journal of Operational Research, Elsevier, vol. 258(1), pages 334-342.
    9. Barış Ata & Tava Lennon Olsen, 2009. "Near-Optimal Dynamic Lead-Time Quotation and Scheduling Under Convex-Concave Customer Delay Costs," Operations Research, INFORMS, vol. 57(3), pages 753-768, June.
    10. Naor, P, 1969. "The Regulation of Queue Size by Levying Tolls," Econometrica, Econometric Society, vol. 37(1), pages 15-24, January.
    11. Apostolos Burnetas & Antonis Economou & George Vasiliadis, 2017. "Strategic customer behavior in a queueing system with delayed observations," Queueing Systems: Theory and Applications, Springer, vol. 86(3), pages 389-418, August.
    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. Roger L. Tobin & Terry L. Friesz, 1988. "Sensitivity Analysis for Equilibrium Network Flow," Transportation Science, INFORMS, vol. 22(4), pages 242-250, November.
    14. 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.
    15. Jiejian Feng & Liming Liu & Xiaoming Liu, 2011. "TECHNICAL NOTE---An Optimal Policy for Joint Dynamic Price and Lead-Time Quotation," Operations Research, INFORMS, vol. 59(6), pages 1523-1527, December.
    16. Jinting Wang & Zhe George Zhang, 2018. "Strategic joining in an M/M/1 queue with risk-sensitive customers," Journal of the Operational Research Society, Taylor & Francis Journals, vol. 69(8), pages 1197-1214, August.
    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. P. Mala & M. Palanivel & S. Priyan & N. Anbazhagan & Srijana Acharya & Gyanendra Prasad Joshi & Joohan Ryoo, 2021. "Sustainable Decision-Making Approach for Dual-Channel Manufacturing Systems under Space Constraints," Sustainability, MDPI, vol. 13(20), pages 1-22, October.
    2. Gu, Wei & Luan, Xiaoting & Song, Yanan & Shang, Jennifer, 2022. "Impact of loyalty program investment on firm performance: Seasonal products with strategic customers," European Journal of Operational Research, Elsevier, vol. 299(2), pages 621-630.
    3. Qiu, Ruozhen & Sun, Yue & Zhou, Hongcheng & Sun, Minghe, 2023. "Dynamic pricing and quick response of a retailer in the presence of strategic consumers: A distributionally robust optimization approach," European Journal of Operational Research, Elsevier, vol. 307(3), pages 1270-1298.
    4. Zhai, Yue & Hua, Guowei & Cheng, Meng & Cheng, T.C.E., 2023. "Production lead-time hedging and order allocation in an MTO supply chain," European Journal of Operational Research, Elsevier, vol. 311(3), pages 887-905.
    5. Myron Benioudakis & Apostolos Burnetas & George Ioannou, 2022. "Single versus dynamic lead-time quotations in make-to-order systems with delay-averse customers," Annals of Operations Research, Springer, vol. 318(1), pages 33-65, November.
    6. Gabi Hanukov & Michael Hassoun & Oren Musicant, 2021. "On the Benefits of Providing Timely Information in Ticket Queues with Balking and Calling Times," Mathematics, MDPI, vol. 9(21), pages 1-16, October.
    7. Benioudakis, Myron & Zissis, Dimitris & Burnetas, Apostolos & Ioannou, George, 2023. "Service provision on an aggregator platform with time-sensitive customers: Pricing strategies and coordination," International Journal of Production Economics, Elsevier, vol. 257(C).

    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. 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.
    2. Myron Benioudakis & Apostolos Burnetas & George Ioannou, 2022. "Single versus dynamic lead-time quotations in make-to-order systems with delay-averse customers," Annals of Operations Research, Springer, vol. 318(1), pages 33-65, November.
    3. Balcıõglu, Barış & Varol, Yãgız, 2022. "Fair and profitable: How pricing and lead-time quotation policies can help," European Journal of Operational Research, Elsevier, vol. 299(3), pages 977-986.
    4. 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.
    5. 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.
    6. Dimitrios Logothetis & Antonis Economou, 2023. "The impact of information on transportation systems with strategic customers," Production and Operations Management, Production and Operations Management Society, vol. 32(7), pages 2189-2206, July.
    7. Vasiliki Kostami, 2020. "Price and Lead time Disclosure Strategies in Inventory Systems," Production and Operations Management, Production and Operations Management Society, vol. 29(12), pages 2760-2788, December.
    8. 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.
    9. Liu, Jian & Chen, Jian & Bo, Rui & Meng, Fanlin & Xu, Yong & Li, Peng, 2023. "Increases or discounts: Price strategies based on customers’ patience times," European Journal of Operational Research, Elsevier, vol. 305(2), pages 722-737.
    10. Antonis Economou, 2022. "How much information should be given to the strategic customers of a queueing system?," Queueing Systems: Theory and Applications, Springer, vol. 100(3), pages 421-423, April.
    11. Benioudakis, Myron & Zissis, Dimitris & Burnetas, Apostolos & Ioannou, George, 2023. "Service provision on an aggregator platform with time-sensitive customers: Pricing strategies and coordination," International Journal of Production Economics, Elsevier, vol. 257(C).
    12. Tesnim Naceur & Yezekael Hayel, 2020. "Deterministic state-based information disclosure policies and social welfare maximization in strategic queueing systems," Queueing Systems: Theory and Applications, Springer, vol. 96(3), pages 303-328, December.
    13. 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.
    14. Dimitrakopoulos, Y. & Burnetas, A.N., 2016. "Customer equilibrium and optimal strategies in an M/M/1 queue with dynamic service control," European Journal of Operational Research, Elsevier, vol. 252(2), pages 477-486.
    15. 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.
    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. 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.
    18. Zhang, Jian & Nault, Barrie R. & Tu, Yiliu, 2015. "A dynamic pricing strategy for a 3PL provider with heterogeneous customers," International Journal of Production Economics, Elsevier, vol. 169(C), pages 31-43.
    19. Czerny, Achim I. & Guo, Pengfei & Hassin, Refael, 2022. "Shall firms withhold exact waiting time information from their customers? A transport example," Transportation Research Part B: Methodological, Elsevier, vol. 166(C), pages 128-142.
    20. Zhongbin Wang & Yunan Liu & Lei Fang, 2022. "Pay to activate service in vacation queues," Production and Operations Management, Production and Operations Management Society, vol. 31(6), pages 2609-2627, June.

    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:289:y:2021:i:1:p:165-176. 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.