Managing a Service System under the Influence of Social Interactions

Abstract

Consumers tend to perceive a service of higher value when more consumers, under the influence of others, make the same choice. In this paper, we investigate the price and capacity decisions in a service system under the influence of social interactions. We model such a service process by an M/M/1 queue system with observable queues. Consumers perceive a positive (negative) value of the service if the observed queue length is longer (shorter) than the base queue length --- an anchor point in their value perception. We examine the effects of the intrinsic value of the service and the consumer's value perception (in terms of the queue length anchor point) on the price and capacity decisions under the influence of social interactions. We also quantify the potential gain or loss in profit when the influence of social interactions is ignored. Theoretical results are derived to guide the price and capacity decisions to exploit the influence of social interactions. It is found that there exist delicate dynamics among key parameters and variables, when ignored, that could lead to undesirable outcomes. The study offers new insights to balance the demand-inducing effect and the congestion-aggravating effect in a service system under the influence of social interactions.