Firms in many industries are capacity-constrained and face delay-sensitive customers who are willing to pay more for faster service. I will discuss some of my work on the problem of designing revenue-maximizing pricing and service policies in such environments.

My talk will focus on the question of incentive-compatible price and service differentiation: How to design a static price/lead-time menu, and a corresponding scheduling policy, to maximize revenues from heterogeneous customers with private information on their attributes?

I will start with a brief review of the case where customers have unit demand ([1], [2], [3]). In this case, delay cost heterogeneity is the key driver of the optimal policy. I will then discuss work on the case where customers have demand on multiple occasions ([4]). We assume customers do not differ in their delay costs. Yet we show that priority service may be optimal as a result of demand rate heterogeneity.

Time permitting I will conclude by outlining some underexplored demand characteristics that point to future directions for research on the design of pricing and service policies.

References

[1] Afèche, P., H. Mendelson. 2004. Pricing and priority auctions in queueing systems with a generalized delay cost structure. Management Science, 50, 869-882.

[2] Afèche, P. 2013.  Incentive-compatible revenue management in queueing systems: optimal strategic delay. Manufacturing & Service Operations Management, 15, 423-443.

[3] Afèche, P., M. Pavlin. 2015. Optimal price/lead-time menus for queues with customer choice: segmentation, pooling, strategic delay.  Forthcoming in Management Science.

[4] Afèche, P., O. Baron, J.Milner, R.Roet-Green. 2015. Pricing and prioritizing time-sensitive customers with heterogeneous demand rates. Under revision for Operations Research.