Abstract

https://ssrn.com/abstract=2438300
 


 



Near-Optimality of Coarse Service Grades for Customer Differentiation in Queueing Systems


Hamid Nazerzadeh


University of Southern California - Marshall School of Business

Ramandeep S. Randhawa


University of Southern California

March 25, 2015


Abstract:     
We analyze a service firm that caters to price and delay sensitive customers who are differentiated on both their value for the service and the cost of waiting. There is a continuum of customer types in our setting and we model each customer's cost of waiting to be linear in the delay incurred with a multiplier that is an increasing linear or sub-linear function of the customer's value for the service. Using a large system approach, we characterize the firm's revenue maximizing menu of price and delay quotations and the value of customer differentiation. We further characterize the value of offering coarse or few service grades and find that offering two service grades is asymptotically optimal on the typical square-root scale, relative to the optimal policy.

Number of Pages in PDF File: 28

JEL Classification: D4


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Date posted: May 19, 2014 ; Last revised: March 26, 2015

Suggested Citation

Nazerzadeh, Hamid and Randhawa, Ramandeep S., Near-Optimality of Coarse Service Grades for Customer Differentiation in Queueing Systems (March 25, 2015). Available at SSRN: https://ssrn.com/abstract=2438300 or http://dx.doi.org/10.2139/ssrn.2438300

Contact Information

Hamid Nazerzadeh (Contact Author)
University of Southern California - Marshall School of Business ( email )
Bridge Memorial Hall
Los Angeles, CA 90089
United States
HOME PAGE: http://www-bcf.usc.edu/~nazerzad/

Ramandeep S. Randhawa
University of Southern California ( email )
Marshall School of Business
BRI 401, 3670 Trousdale Parkway
Los Angeles, CA 90089
United States
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