Price and Service Discrimination in Queuing Systems: Incentive Compatibility of Gcµ Scheduling

  • Authors:

  • Jan A. Van Mieghem

  • Affiliations:

  • -

  • Venue:
  • Management Science
  • Year:
  • 2000

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Abstract

This article studies the optimal prices and service quality grades that a queuing system--the "firm"--provides to heterogeneous, utility-maximizing customers who measure quality by their experienced delay distributions. Results are threefold: First, delay costcurves are introduced that allow for a flexible description of a customer's quality sensitivity. Second, a comprehensiveexecutable approach is proposed that analytically specifies scheduling, delay distributions and prices for arbitrary delay sensitivity curves. The tractability of this approach derives from porting heavy-traffic Brownian results into the economic analysis. The generalizedc脗µ (G c脗µ) scheduling rule that emerges is dynamic so that, in general, service grades need not correspond to a static priority ranking. A benchmarking example investigates the value of differentiated service. Third, the notions ofgrade andrate incentive compatibility (IC) are introduced to study this system under asymmetric information and are established for G c脗µ scheduling when service times are homogeneous and customers atomistic. Grade IC induces correct grade choice resulting in perfect service discrimination; rate IC additionally induces centralized-optimal rates. Dynamic G c脗µ scheduling exhibits negative feedback that, together with time-dependent pricing, can also yield rate incentive compatibility with heterogeneous service times. Finally,multiplan pricing, which offers all customers amenu with a choice of multiple rate plans, is analyzed.