Pricing surplus server capacity for mean waiting time sensitive customers

• Published in: European journal of operational research Vol. 205; no. 1; pp. 159 - 171
• Main Authors: Sinha, Sudhir K., Rangaraj, N., Hemachandra, N.
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 16.08.2010; Elsevier; Elsevier Sequoia S.A
• Series: European Journal of Operational Research
• Subjects: Applied sciences; Customer services; Decision making models; Dynamic priority schemes; Exact sciences and technology; Inventory control, production control. Distribution; Linear demand function; Market prices; Non-convex constrained optimization; Operational research and scientific management; Operational research. Management science; Optimization algorithms; Poisson distribution; Quality of service; Queueing; Queueing Quality of service Dynamic priority schemes Linear demand function Non-convex constrained optimization; Queuing theory; Queuing theory. Traffic theory; Studies; Queueing; Linear demand function; Dynamic priority schemes; Non-convex constrained optimization; Quality of service; Non convex programming; Inclusion; Priority; Resource sharing; Modeling; Poisson process; Surplus; Waiting time; Exact solution; Optimal decision; Supply demand balance; Pricing; Optimal operation; Arrival process; Demand function; Contract; Queue; Service quality
• ISSN: 0377-2217; 1872-6860
• DOI: 10.1016/j.ejor.2009.12.023

We consider a queueing model wherein the resource is shared by two different classes of customers, primary (existing) and secondary (new), under a service level based pricing contract. This contract between secondary class customers and resource manager specifies unit admission price and quality of service (QoS) offered. We assume that the secondary customers’ Poisson arrival rate depends linearly on unit price and service level offered while the server uses a delay dependent priority queue management scheme. We analyze the joint problem of optimal pricing and operation of the resource with the inclusion of secondary class customers, while continuing to offer a pre-specified QoS to primary class customers. Our analysis leads to an algorithm that finds, in closed form expressions, the optimal points of the resulting non-convex constrained optimization problem. We also study in detail the structure and the non-linear nature of these optimal pricing and operating decisions.