Incentive-Compatible Revenue Management in Queueing Systems: Optimal Strategic Delay

Abstract

How should a firm design a price/lead-time menu and scheduling policy to maximize revenues from heterogeneous time-sensitive customers with private information about their preferences? We consider this question for a queueing system with two customer types and provide the following results. First, we develop a novel problem formulation and solution method that combines the achievable region approach with mechanism design. This approach extends to menu design problems for other systems. Second, the work conserving cμ priority rule, known to be delay cost minimizing, incentive-compatible, and socially optimal, need not be revenue maximizing. A strategic delay policy may be optimal: It prioritizes impatient customers, but artificially inflates the lead times of patient customers. This suggests a broader guideline: Revenue-maximizing firms that lack customer-level demand information should also consider customer incentives, not only operational constraints, in their scheduling policies. Third, we identify general necessary and sufficient conditions for optimal strategic delay: a price, a lead-time, and a segment-size condition. We translate these into demand and capacity parameter conditions for cases with homogeneous and heterogeneous valuations for each type. In some cases strategic delay is optimal if capacity is relatively abundant, in others if it is relatively scarce.