Equilibrium strategies and pricing for a congested system with opaque price and loss-averse customers

Abstract

In this paper, we study a service provider with opaque price strategy who sells services to loss-averse customers in a congestion-prone facility. The opaque price strategy means that the service provider discloses a price range of services to potential customers through social media. Loss aversion aims to characterize customers' reference-dependent preferences. We analyze a queueing game model with the help of an M/M/1 queueing system and adopt the cutoff structure characterized by reservation price to represent the loss-averse customers' joining decision. Then, we derive the loss-averse customer's reservation price and queueing strategies at equilibrium. In addition, the service provider sets the price to maximize her profit. We obtain some insights into how customers' degree of loss aversion affects the service provider's optimal price. For example, customers with a higher degree of loss aversion on the waiting time and the payment would push the service provider to decrease the optimal price. Customers with a higher degree of loss aversion about the service reward would urge the service provider to increase the optimal price. Furthermore, considering the attachment effect, we obtain the lowest possible expected profit of the service provider.