Optimal incentive-compatible priority pricing for the M/M/1 queue
Operations Research
User delay costs and internal pricing for a service facility
Management Science
Due-date setting and priority sequencing in a multiclass M/G.1 queue
Management Science
Single facility due date setting with multiple customer classes
Management Science
Management Science
Decentralized regulation of a queue
Management Science
Improving Service by Informing Customers About Anticipated Delays
Management Science
Management Science
Product Differentiation and Capacity Cost Interaction in Time and Price Sensitive Markets
Manufacturing & Service Operations Management
Optimal Leadtime Differentiation via Diffusion Approximations
Operations Research
Priority Auctions and Queue Disciplines That Depend on Processing Time
Management Science
Competition in Service Industries
Operations Research
Contact Centers with a Call-Back Option and Real-Time Delay Information
Operations Research
Analysis and Comparison of Queues with Different Levels of Delay Information
Management Science
Strategic Capacity Rationing to Induce Early Purchases
Management Science
Dynamic Pricing and Lead-Time Quotation for a Multiclass Make-to-Order Queue
Management Science
Management Science
The Impact of Delay Announcements in Many-Server Queues with Abandonment
Operations Research
Exploiting Market Size in Service Systems
Manufacturing & Service Operations Management
Revenue Management with Partially Refundable Fares
Operations Research
Promised Delivery Time and Capacity Games in Time-Based Competition
Management Science
Bounded Rationality in Service Systems
Manufacturing & Service Operations Management
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Services such as FedEx charge up-front fees but reimburse customers for delays. However, lead-time pricing studies ignore such delay refunds. This paper contributes to filling this gap. It studies revenue-maximizing tariffs that depend on realized lead times for a provider serving multiple time-sensitive customer types. We relax two key assumptions of the standard model in the lead-time pricing literature. First, customers may be risk averse RA with respect to payoff uncertainty, where payoff equals valuation, minus delay cost, minus payment. Second, tariffs may be arbitrary functions of realized lead times. The standard model assumes risk-neutral RN customers and restricts attention to flat rates. We report three main findings: 1 With RN customers, flat-rate pricing maximizes revenues but leaves customers exposed to payoff variability. 2 With RA customers, flat-rate pricing is suboptimal. If types are distinguishable, the optimal lead-time-dependent tariffs fully insure delay cost risk and yield the same revenue as under optimal flat rates for RN customers. With indistinguishable RA types, the differentiated first-best tariffs may be incentive-compatible even for uniform service, yielding higher revenues than with RN customers. 3 Under price and capacity optimization, lead-time-dependent pricing yields higher profits with less capacity compared to flat-rate pricing.