Pricing in Queues Without Demand Information
Moshe Haviv, Ramandeep S. Randhawa
Manufacturing & Service Operations Management · 2014 · Volume 16 · Issue 3
Abstract
We consider revenue optimization in an M / M /1 queue with price and delay sensitive customers, and we study the performance of demand-independent pricing that does not require any arrival rate information. We formally characterize the optimal demand-independent price and its performance relative to pricing with precise arrival rate knowledge. We find that demand-independent pricing can perform remarkably well and its performance improves as customers become more delay sensitive. In particular, for uniformly distributed customer valuations, under a large set of parameters, we find that demand-independent prices can capture more than 99% of the optimal revenue. We also study social optimization and find that demand-independent pricing can perform quite well; however, the performance is better under revenue optimization.
Keywords
static pricing, dynamic pricing, revenue optimization, robust optimization
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