Effective Service Design in Strategic Customer Setting

Abstract

This paper theoretically analyzes interactive decision making in the service sector in order to evaluate and interpret the optimal actions of the actors involved. The actors of this sector are the strategic customers, and the service providers. The decisions of these actors are interactive, since they affect each other. The service provider decides on the service design, service rate, and the price, whereas the strategic customer decides whether to receive the service or not. The optimal actions for the service provider and the strategic customer are respectively the ones which maximize their profit and utility functions. Both the short term and long term decisions of the service provider are analyzed. While price is the main decision parameter on both, service rate is the decision parameter on only the long term. The analyses emphasize the value of wait time in strategic customers' decision-making, which will be the service provider's main criteria for the design of the system.

Pricing in M/M/1 queues when cost of waiting in queue differs from cost of waiting in service

“…Knudsen allowed more than a single queue in any one firm [6]. Sariyer compared pricing strategies of the service provider in the cases of a single server, and two servers [7]. Some other studies represented socially optimal pricing schemes for different classes of customers [8,9,10].…”