Optimal Processing Policies for an e-Commerce Web Server

  • Authors:

  • Yong Tan;Kamran Moinzadeh;Vijay S. Mookerjee

  • Affiliations:

  • University of Washington Business School, Box 353200, Seattle, Washington 98195-3200, USA;University of Washington Business School, Box 353200, Seattle, Washington 98195-3200, USA;School of Management, University of Texas at Dallas, JO4.624, Richardson, Texas 75803-0688, USA

  • Venue:
  • INFORMS Journal on Computing
  • Year:
  • 2005

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Abstract

The explosive growth in online shopping has provided online retailers impressive opportunities to extend revenue and profit. However, retailers may lose considerable online business from slow response times at electronic shopping sites. Although increasing server capacity may improve response time, the resources needed to do so are clearly not free. In this study, we propose a scheme that can improve a server's performance with no more than its current capacity. This scheme is based on priority processing, where the priority assigned to a customer depends on the potential revenue that is likely to be generated from the customer. The results for single-period analysis show that the benefit from priority processing increases as the server becomes more heavily utilized. We have also modeled a multiperiod version of the problem, where the demand in a period depends on the quality of service (QoS) that buyers receive in the previous period. In the multiperiod problem, both the server capacity and the processing policy in each period are determined optimally. Here, it may be optimal for the retailer to sacrifice profit and increase QoS in initial periods in order to increase demand (and revenue) in later periods. Thus, the processing policy of the server evolves from an emphasis on QoS in initial periods, to one on profit in subsequent periods.