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Demand Equilibria in Spatial Service Systems

Author

Listed:
  • John Gunnar Carlsson

    (Industrial and Systems Engineering, University of Southern California, Los Angeles, California 90089)

  • Xiaoshan Peng

    (Kelley School of Business, Indiana University, Bloomington, Indiana 47405)

  • Ilya O. Ryzhov

    (Robert H. Smith School of Business, University of Maryland, College Park, Maryland 20742)

Abstract

Problem definition : A service is offered at certain locations (“facilities”) in a geographical region. Customers can appear anywhere in the region, and each customer chooses a facility based on travel distance as well as expected waiting time. Customer decisions affect waiting times by increasing the load on a facility, and thus, they impact other customers’ decisions. The service provider can also influence service quality by adjusting service rates at each facility. Methodology/results : Using a combination of queueing models and computational geometry, we characterize demand equilibria in such spatial service systems. An equilibrium can be visualized as a partition of the region into service zones that form as a result of customer decisions. Service rates can be set in a way that achieves the best-possible social welfare purely through decentralized customer behavior. Managerial implications : We provide techniques for computing and visualizing demand equilibria as well as calculating optimal service rates. Our analytical and numerical results indicate that in many situations, resource allocation is a far more significant source of inefficiency than decentralized behavior.

Suggested Citation

  • John Gunnar Carlsson & Xiaoshan Peng & Ilya O. Ryzhov, 2024. "Demand Equilibria in Spatial Service Systems," Manufacturing & Service Operations Management, INFORMS, vol. 26(6), pages 2305-2321, November.
    • Handle: RePEc:inm:ormsom:v:26:y:2024:i:6:p:2305-2321
    DOI: 10.1287/msom.2023.0434
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