In many services, a customer's valuation for the service depends on the amount of time that customer requires for service. We thus consider a queueing model to explicitly capture such dependence in congestion-prone services. Our goal is to study the impact of the dependence on the service provider's pricing decision and revenue performance. We first consider a benchmark case in which customers are charged a fixed fee for service. Employing a bivariate dependence ordering to rank the strength of dependence, we show that the service provider's revenue decreases with the strength of dependence. In particular, a positive dependence always hurts the revenue. Furthermore, we find that the existence of dependence may lead to outcomes different than those prescribed by the traditional queueing models without dependence. Next, to overcome the possible disadvantage of positive dependence, we propose a service-based pricing (SBP) scheme that prices a customer's service based on the customer's realized service time. Analyzing an important class of dependencies, we show that the SBP scheme can be designed to exploit the underlying dependence structure for surplus extraction. A positive dependence, if properly addressed, can be used to generate more revenue than the case of no dependence.
Event Period
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Seminar: Managing Services with Dependent Service Valuations and Service Times
30 Oct 2018
11:00am - 12:30pm
Room 6-208, 6/F, Lau Ming Wai Academic Building