Joining Longer Queues: Information Externalities in Queue Choice
42 Pages Posted: 19 Sep 2007 Last revised: 9 May 2012
Date Written: January 2008
A classic example that illustrates how observed customer behavior impacts other customers' decisions is the selection of a restaurant whose quality is uncertain. Customers often choose the busier restaurant, inferring that other customers in that restaurant know something that they do not. In an environment with random arrival and service times, customer behavior is reflected in the lengths of the queues that form at the individual servers. Queue lengths could signal two factors - potentially higher arrivals to the server or potentially slower service at the server. We study the effect of both arrival and service rates on the inference made by an arriving customer.
In our model, based on both private information about the service quality and queue length information, customers decide which queue to join. When the service rates are the same, we confirm that in equilibrium it may be rational to ignore private information and purchase from the service provider with the longer queue when only one additional customer is present in the longer queue. We show that such congestion driven choice behavior causes alternating cycles of successful and unsuccessful periods for a service provider. Hence, we provide an explanation based on endogenous choice-making for often observed "in" and "out" behavior of restaurants. We show that the success of a service provider depends on the private information of the customer arriving at an empty system and hence, contains a significant factor of luck. When the service rates and unknown service values are negatively correlated our results are strengthened; customers strictly prefer to join longer queues. When the service rates are positively correlated with unknown service values, customers might join shorter queues.
Keywords: Customer Herding, Market Dynamics, Private signals, Promotion and Service Capacity
JEL Classification: D62, D84
Suggested Citation: Suggested Citation