Dynamic Pricing and Lead-Time Quotation for a Multiclass Make-to-Order Queue

Çelik, Sabri; Maglaras, Costis

doi:10.1287/mnsc.1070.0836

Cited by 97 publications

(49 citation statements)

References 33 publications

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“…Celik and Maglaras (2008), Ata and Olsen (2009), and Kim and Randhawa (2015) each define a model with a platform that serves stochastically arriving price sensitive consumers, but with fixed capacity. Banerjee, Riquelme, and Johari (2015) considers the value of dynamic pricing in a model with random arrivals of consumers and providers.…”

Section: Literature Reviewmentioning

confidence: 99%

The Role of Surge Pricing on a Service Platform with Self-Scheduling Capacity

2016

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Recent platforms, like Uber and Lyft, offer service to consumers via "self-scheduling" providers who decide for themselves how often to work. These platforms may charge consumers prices and pay providers wages that both adjust based on prevailing demand conditions. For example, Uber uses a "surge pricing" policy, which pays providers a fixed commission of its dynamic price. With a stylized model that yields analytical and numerical results, we study several pricing schemes that could be implemented on a service platform, including surge pricing. We find that the optimal contract substantially increases the platform's profit relative to contracts that have a fixed price or fixed wage (or both), and although surge pricing is not optimal, it generally achieves nearly the optimal profit. Despite its merits for the platform, surge pricing has been criticized because of concerns for the welfare of providers and consumers. In our model, as labor becomes more expensive, providers and consumers are better off with surge pricing because providers are better utilized and consumers benefit both from lower prices during normal demand and expanded access to service during peak demand. We conclude, in contrast to popular criticism, that all stakeholders can benefit from the use of surge pricing on a platform with self-scheduling capacity. Abstract Recent platforms, like Uber and Lyft, offer service to consumers via "self-scheduling" providers who decide for themselves how often to work. These platforms may charge consumers prices and pay providers wages that both adjust based on prevailing demand conditions. For example, Uber uses a "surge pricing" policy, which pays providers a fixed commission of its dynamic price. We find that the optimal contract substantially increases the platform's profit relative to contracts that have a fixed price or fixed wage (or both) and although surge pricing is not optimal, it generally achieves nearly the optimal profit. Despite its merits for the platform, surge pricing has been criticized in the press and has garnered the attention of regulators due to concerns for the welfare of providers and consumers. However, we find that providers and consumers are generally better off with surge pricing because providers are better utilized and consumers benefit both from lower prices during normal demand and expanded access to service during peak demand. We conclude, in contrast to popular criticism, that all stakeholders can benefit from the use of surge pricing on a platform with self-scheduling capacity.

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Section: Literature Reviewmentioning

confidence: 99%

The Role of Surge Pricing on a Service Platform with Self-Scheduling Capacity

2016

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“…See Hassin and Haviv (2003) for an excellent survey. We consider static price/lead-time menus, unlike papers on dynamic price and/or lead-time quotation (e.g., Plambeck 2004, Çelik and Maglaras 2008, Ata and Olsen 2013.…”

Section: Literature and Positioningmentioning

confidence: 99%

Incentive-Compatible Revenue Management in Queueing Systems: Optimal Strategic Delay

Afèche

2013

M&SOM

163

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H ow should a firm design a price/lead-time menu and scheduling policy to maximize revenues from heterogeneous time-sensitive customers with private information about their preferences? We consider this question for a queueing system with two customer types and provide the following results. First, we develop a novel problem formulation and solution method that combines the achievable region approach with mechanism design. This approach extends to menu design problems for other systems. Second, the work conserving c priority rule, known to be delay cost minimizing, incentive-compatible, and socially optimal, need not be revenue maximizing. A strategic delay policy may be optimal: It prioritizes impatient customers, but artificially inflates the lead times of patient customers. This suggests a broader guideline: Revenue-maximizing firms that lack customer-level demand information should also consider customer incentives, not only operational constraints, in their scheduling policies. Third, we identify general necessary and sufficient conditions for optimal strategic delay: a price, a lead-time, and a segment-size condition. We translate these into demand and capacity parameter conditions for cases with homogeneous and heterogeneous valuations for each type. In some cases strategic delay is optimal if capacity is relatively abundant, in others if it is relatively scarce.

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“…Some of the studies consider order selection decisions, where the probability that an arriving customer places an order decreases as the quoted leadtime increases (Duenyas, 1995;Duenyas and Hopp, 1995). Finally, a small number of papers consider price and leadtime decisions simultaneously (Easton and Moodie, 1999;Moodie, 1999;Moodie and Bobrowski, 1999;Plambeck, 2004;Wang, 2004;Celik and Maglaras, 2005;Watanapa and Techanitisawad, 2005;Charnsirisakskul et al, 2006).…”

Section: Literature Reviewmentioning

confidence: 99%

Coordination of marketing and production for price and leadtime decisions

2008

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We study a firm which serves customers that are sensitive to quoted price and leadtime, with pricing and leadtime decisions being made by the marketing and production departments, respectively. We analyze the inefficiencies created by the decentralization of the price and leadtime decisions. In the decentralized setting, the total demand generated is larger, leadtimes are longer, quoted prices are lower, and the firm's profits are lower as compared to the centralized setting. We show that coordination can be achieved using a transfer price contract with bonus payments. We also provide insights on the sensitivity of the optimal decisions with respect to market characteristics, sequence of decisions and the firm's capacity level.

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Dynamic Pricing and Lead-Time Quotation for a Multiclass Make-to-Order Queue

Cited by 97 publications

References 33 publications

The Role of Surge Pricing on a Service Platform with Self-Scheduling Capacity

The Role of Surge Pricing on a Service Platform with Self-Scheduling Capacity

Incentive-Compatible Revenue Management in Queueing Systems: Optimal Strategic Delay

Coordination of marketing and production for price and leadtime decisions

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