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Revenue maximization in two‐station tandem queueing systems

Author

Listed:
  • Xinchang Wang
  • Sigrún Andradóttir
  • Hayriye Ayhan
  • Tonghoon Suk

Abstract

We study optimal pricing for tandem queueing systems with finite buffers. The service provider dynamically quotes prices to incoming price sensitive customers to maximize the long‐run average revenue. We present a Markov decision process model for the optimization problem. For systems with two stations, general‐sized buffers, and two or more prices, we describe the structure of the optimal dynamic pricing policy and develop tailored policy iteration algorithms to find an optimal pricing policy. For systems with two stations but no intermediate buffer, we characterize conditions under which quoting either a high or a low price to all customers is optimal and provide an easy‐to‐implement algorithm to solve the problem. Numerical experiments are conducted to compare the developed algorithms with the regular policy iteration algorithm. The work also discusses possible extensions of the obtained results to both three‐station systems and two‐station systems with price and congestion sensitive customers using numerical analysis.

Suggested Citation

  • Xinchang Wang & Sigrún Andradóttir & Hayriye Ayhan & Tonghoon Suk, 2020. "Revenue maximization in two‐station tandem queueing systems," Naval Research Logistics (NRL), John Wiley & Sons, vol. 67(2), pages 77-107, March.
    • Handle: RePEc:wly:navres:v:67:y:2020:i:2:p:77-107
    DOI: 10.1002/nav.21887
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    References listed on IDEAS

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    1. Mohammad H. Yarmand & Douglas G. Down, 2015. "Maximizing throughput in zero-buffer tandem lines with dedicated and flexible servers," IISE Transactions, Taylor & Francis Journals, vol. 47(1), pages 35-49, January.
    2. Daniel F. Silva & Bo Zhang & Hayriye Ayhan, 2018. "Admission control strategies for tandem Markovian loss systems," Queueing Systems: Theory and Applications, Springer, vol. 90(1), pages 35-63, October.
    3. Ghoneim, Hussein A. & Stidham, Shaler, 1985. "Control of arrivals to two queues in series," European Journal of Operational Research, Elsevier, vol. 21(3), pages 399-409, September.
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    5. William Millhiser & Apostolos Burnetas, 2013. "Optimal admission control in series production systems with blocking," IISE Transactions, Taylor & Francis Journals, vol. 45(10), pages 1035-1047.
    6. Yarmand, Mohammad H. & Down, Douglas G., 2013. "Server allocation for zero buffer tandem queues," European Journal of Operational Research, Elsevier, vol. 230(3), pages 596-603.
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