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Note---Optimal Pricing Policy for the Service Facility Offering a Set of Priority Prices

Author

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  • Hanna Alperstein

    (Faculty of Management, Tel Aviv University, Tel Aviv 69978, Israel)

Abstract

A profit making service facility that offers a set of different prices for the single service it provides is considered. By paying a higher price, the customer buys into a priority class that shortens his stay in the service system. We determine the optimal number of priority classes and the set of prices that affords the service facility a higher revenue than any other set. Relying on Adiri and Yechiali (Adiri, I., U. Yechiali. 1974. Optimal priority-purchasing and pricing decisions in non monopoly and monopoly queues. Oper. Res. 22 1051--1066.) who demonstrated that the customers' optimal priority-purchasing strategy is of the control limit type, we prove that for every set of M(>1) priority prices that are optimal to the service facility, the control limits of all priority classes equal one except the control limit of the highest priority class that is determined by the parameters of the system. We show that the highest priority class also has a control limit of one when the service facility uses the optimal M and optimal priority prices. Thus full optimality results in implementation of the pure LIFO (Last-In-First-Out) service discipline.

Suggested Citation

  • Hanna Alperstein, 1988. "Note---Optimal Pricing Policy for the Service Facility Offering a Set of Priority Prices," Management Science, INFORMS, vol. 34(5), pages 666-671, May.
    • Handle: RePEc:inm:ormnsc:v:34:y:1988:i:5:p:666-671
    DOI: 10.1287/mnsc.34.5.666
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    Citations

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    Cited by:

    1. Refael Hassin, 2022. "Profit maximization and cost balancing in queueing systems," Queueing Systems: Theory and Applications, Springer, vol. 100(3), pages 429-431, April.
    2. Radhakrishnan, Suresh & Balachandran, Kashi R., 1995. "Stochastic choice hazard and incentives in a common service facility," European Journal of Operational Research, Elsevier, vol. 81(2), pages 324-335, March.
    3. Legros, Benjamin & van Leeuwaarden, J.S.H. & Fransoo, Jan C., 2025. "Managing reusable resources with usage time limits," Other publications TiSEM 10a58c0a-9a6c-49a4-8a41-d, Tilburg University, School of Economics and Management.
    4. Moshe Haviv & Binyamin Oz, 2018. "Self-Regulation of an Unobservable Queue," Management Science, INFORMS, vol. 64(5), pages 2380-2389, May.
    5. Zhongbin Wang & Luyi Yang & Shiliang Cui & Jinting Wang, 2021. "In-queue priority purchase: a dynamic game approach," Queueing Systems: Theory and Applications, Springer, vol. 97(3), pages 343-381, April.
    6. Cary Deck & Erik O Kimbrough & Steeve Mongrain, 2014. "Paying for Express Checkout: Competition and Price Discrimination in Multi-Server Queuing Systems," PLOS ONE, Public Library of Science, vol. 9(3), pages 1-13, March.
    7. Chenguang (Allen) Wu & Chen Jin & Senthil Veeraraghavan, 2023. "Designing professional services: Pricing and prioritization," Production and Operations Management, Production and Operations Management Society, vol. 32(8), pages 2578-2595, August.
    8. Warsing, Donald P. & Souza, Gilvan C. & Greis, Noel P., 2001. "Determining the value of dedicated multimodal cargo facilities in a multi-region distribution network," European Journal of Operational Research, Elsevier, vol. 133(1), pages 81-93, August.
    9. Moshe Haviv & Binyamin Oz, 2015. "Regulating an observable M/M/1 queue," Discussion Paper Series dp691, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.

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