Pricing in Queues without Demand Information

Abstract:     
We consider revenue and social optimization in an M/M/1 queue with price and delay sensitive customers, and study the performance of uninformed pricing that does not require any arrival rate information. We formally characterize the optimal uninformed price and its performance relative to pricing with precise arrival rate knowledge. For uniformly distributed customer valuations, under a large set of parameters, we find that uninformed prices can capture more than 99% of the optimal revenue and more than 85% of the optimal social welfare. We further prove that the performance of uninformed prices improves as the customers become more delay sensitive and is always better under revenue optimization compared with social optimization.

Number of Pages in PDF File: 27

Keywords: fixed pricing, static pricing, revenue management, welfare maximization, minimax regret, robust optimization

working papers series