Hide or Advertise: The Carrier's Choice of Waiting Time Information Strategies
33 Pages Posted: 6 Dec 2018
Date Written: November 11, 2018
This paper considers a monopoly firm (carrier) that charges a uniform price to passengers. Passengers are delay-sensitive and hence demand rates depend on waiting times. The carrier can choose to reveal or hide waiting time information. We show that optimal information strategies depend on the curvature of the demand rate functions for both profit- and welfare-maximizing carriers. When demand rates are concave functions of waiting times, the profit-maximizing strategy is hiding waiting time information; and when demand rates are convex functions of waiting times, revealing waiting time maximizes profit. The carrier's welfare-maximizing information strategy is hiding waiting time when demand rate functions are strictly and sufficiently concave. Headway choices, which determine the lengths of inter-departure times, are also considered. We show that the profit-maximizing headways are longer than the welfare-maximizing headways when prices are given. Numerical studies are used to illustrate the dependence of headway choices on information strategies and demand rate curvatures.
Keywords: Information, demand rates, curvatures, headways, prices
JEL Classification: D42, D89, L12, L90, R40
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