Inferring Quality from a Queue

34 Pages Posted: 13 Dec 2005 Last revised: 2 Sep 2009

See all articles by Laurens Debo

Laurens Debo

Dartmouth College - Tuck School of Business

Christine A. Parlour

University of California, Berkeley - Finance Group

Uday Rajan

Stephen M. Ross School of Business, University of Michigan

Date Written: January 6, 2008

Abstract

In this paper, we study how rational agents infer the quality of a good (a product or a service) by observing the queue that is formed by other rational agents to obtain the good. Agents also observe privately the realization of a signal that is imperfectly correlated with the true quality of the good. Based on the queue length information and the signal realization, agents decide whether to join the queue and obtain the good or to balk. The time to produce the good is exponentially distributed. Agents arrive according to a Poisson process at a market and are served according to a FIFO discipline. We nd that when waiting costs are zero, agents receiving a bad signal join the queue only if it is long enough. When waiting costs are strictly positive, agents do not join the queue if it is too long. Furthermore, there may exist a set of isolated queue lengths (\holes") at which agents with a bad signal do not join. In equilibrium, queues are shorter for low quality goods and an agent is more likely to erroneously join a queue for a low quality good than erroneously balk from a queue for a high quality good. When decreasing the service rate, more agents may join queues for high quality goods, even when waiting is costly.

Keywords: Herding, queuing

JEL Classification: D83

Suggested Citation

Debo, Laurens and Parlour, Christine A. and Rajan, Uday, Inferring Quality from a Queue (January 6, 2008). Chicago Booth Research Paper No. 09-26. Available at SSRN: https://ssrn.com/abstract=869568 or http://dx.doi.org/10.2139/ssrn.869568

Laurens Debo (Contact Author)

Dartmouth College - Tuck School of Business ( email )

Hanover, NH 03755
United States

Christine A. Parlour

University of California, Berkeley - Finance Group ( email )

Haas School of Business
545 Student Services Building
Berkeley, CA 94720
United States
510-643-9391 (Phone)

Uday Rajan

Stephen M. Ross School of Business, University of Michigan ( email )

701 Tappan Street
Ann Arbor, MI 48109
United States
734-764-2310 (Phone)

HOME PAGE: http://webuser.bus.umich.edu/urajan

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