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Price and capacity decisions of service systems with boundedly rational customers
Li, Xin; Guo, Pengfei; Lian, Zhaotong
2017-09
Source PublicationNAVAL RESEARCH LOGISTICS
ISSN0894-069X
Volume64Issue:6Pages:437-452
AbstractWe consider price and capacity decisions for a profit-maximizing service provider in a single server queueing system, in which customers are boundedly rational and decide whether to join the service according to a multinomial logit model. We find two potential price-capacity pair solutions for the first-order condition of the profit-maximizing problem. Profit is maximized at the solution with a larger capacity, but minimized at the smaller one. We then consider a dynamically adjusting capacity system to mimic a real-life situation and find that the maximum can be reached only when the initial service rate is larger than a certain threshold; otherwise, the system capacity and demand shrink to zero. We also find that a higher level of customers' bounded rationality does not necessarily benefit a firm, nor does it necessarily allow service to be sustained. We extend our analysis to a setting in which customers' bounded rationality level is related to historical demand and find that such a setting makes service easier to sustain. Finally we find that bounded rationality always harms social welfare.
Keywordbounded rationality queueing strategy service sustainability
DOI10.1002/nav.21767
URLView the original
Indexed BySCI ; SSCI
Language英语
WOS Research AreaOperations Research & Management Science
WOS SubjectOperations Research & Management Science
WOS IDWOS:000418164800001
PublisherWILEY
The Source to ArticleWOS
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Cited Times [WOS]:1   [WOS Record]     [Related Records in WOS]
Document TypeJournal article
CollectionUniversity of Macau
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GB/T 7714
Li, Xin,Guo, Pengfei,Lian, Zhaotong. Price and capacity decisions of service systems with boundedly rational customers[J]. NAVAL RESEARCH LOGISTICS,2017,64(6):437-452.
APA Li, Xin,Guo, Pengfei,&Lian, Zhaotong.(2017).Price and capacity decisions of service systems with boundedly rational customers.NAVAL RESEARCH LOGISTICS,64(6),437-452.
MLA Li, Xin,et al."Price and capacity decisions of service systems with boundedly rational customers".NAVAL RESEARCH LOGISTICS 64.6(2017):437-452.
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