Queuing for Expert Services
Carnegie Mellon University Tepper School of Business Working Paper No. 2004-E-10
48 Pages Posted: 10 Dec 2004
Date Written: July 2004
We consider a monopolist expert offering a service with a 'credence' characteristic. A credence service is one where the customer cannot verify, even after purchase, whether the amount of prescribed service was appropriate or not; examples include legal, medical or consultancy services and car repair. This creates an incentive for the expert to 'induce service', that is, to provide unnecessary services that add no value to the customer, but that allow the expert to increase his revenues. We focus on the impact of an operations phenomenon on service inducement - workload dynamics due to the stochasticity of interarrival and service times. To this end, we model the expert's service operation as a single-server queue. The expert determines the service price within a fixed- and variable-rate structure and decides whether to induce service or not. We characterize the expert's combined optimal pricing and service inducement strategy as a function of service capacity, potential market size, value of service and waiting cost. We conclude with design implications of our results in limiting service inducement.
Keywords: Queueing, credence goods
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