Equilibrium strategies and optimal pricing in an online retailing queueing system

Abstract

This article considers an M/M/1 online retailing queueing model with strategic customers and a monopoly retailer. Customers arrive according to a Poisson process, and upon arrival, they decide whether to purchase the product based on a reward-cost structure. The valuation of the product is determined by its matching probability with the demand. After receiving the purchased product, each customer enters a "virtual" orbit to update the information about the product and then makes her decision on whether to replace or return the product based on the product's assessed value. Accordingly, a two-dimensional decision among customers is formulated and we investigate the equilibrium customer strategies and the optimal pricing strategy for the retailer. Interestingly, in equilibrium, we find that the system's throughput can be nonmonotone in the product's matching probability. In addition, under the equilibrium strategy of customers, we reveal the fact that the retailer's optimal price is not necessarily increasing in the matching probability. From the perspective of the social planner, the returning behavior can worsen the social welfare, and therefore those unsatisfied customers are encouraged to replace the product rather than to return it. Finally, some numerical experiments are conducted to verify our results and to examine the sensitivity of several key performance measures of the system.

Understanding product returns: A systematic literature review using machine learning and bibliometric analysis

“…Wang et al, 2020;. While some retailers may anticipate and take into account RP for pricing strategy (Chen & Bell, 2009;Mahmoudzadeh, 2020;Vorasayan & Ryan, 2006;Wang, Wang, & Chen, 2021;Zou, Zhou, & Jiang, 2020), some authors argue that information sharing/ asymmetric information between parties in the CLSC or between customers and retailers are also important in mitigating the uncertainties (Casalin & Dia, 2019;Rao et al, 2014;Seeger et al, 2019;Yan & Cao, 2017). Finally, solutions for some special problems of PR in retailers such as optimal resources allocation and trade-in value effects are derived (Borenich et al, 2020;Ke & Yan, 2020;Petersen & Kumar, 2015) or the interpretation and calculation of return rates (El Kihal et al, 2021).…”

Pay to activate service in vacation queues

“…Besides the joining decisions, Cui et al (2020) and Yang et al (2021) considered queueing models where customers can choose to pay to improve their queueing positions. Other two-dimensional settings can be found in referral priority models (Yang & Debo, 2019), online retailing queueing models (Wang et al, 2021a), multichannel service models with product exchange (Sun et al, 2022a), and restaurant models allowing orders to be placed ahead and then picked up later (Sun et al, 2022b). Motivated by cloud services, Dierks and Seuken (2021) We emphasize that the consideration of a two-dimensional customer strategy adds significant complexity to the equilibrium analysis.…”

Optimal consumer sales tax policies for online‐offline retail operations with consumer returns

“…In contrast, we focus on retailers that operate both online and offline channels (eg, Gao & Su, 2017; Kireyev, Kumar, & Ofek, 2017; Yoo & Lee, 2011; Zhang, 2009). The literature finds that the optimal distribution channel depends on various factors, such as pricing competition (Zhang, 2009), product design (Luo & Sun, 2016), service (Wang, Wang, & Chen, 2020), and strategic consumer behavior (Gao & Su, 2017; Lee, Choi, & Cheng, 2015). Zhang (2009) finds that multichannel retailing is not necessarily the best strategy for all retailers, arguing that a retailer's optimal channel strategy depends on the nature of the product, the retailer's costs, competitors' strategies, and the competitiveness of the market.…”

“…However, they also find that competition between a pure e‐tailer and dual‐channel retailers can lower social welfare. As a remark, pure online retailing (Wang et al, 2020) and online platforms (Yan, Zhu, Korolko, & Woodard, 2020) have been well‐explored in the operations literature. This paper is different from them as the focal point is on the multichannel operations and the related sales taxation schemes.…”