Abstract

We study the optimal pricing problem for a tandem queueing system with an arbitrary number of stations, finite buffers, and blocking. The problem is formulated using a Markov decision process model with the objective to maximize the long-run expected time-average revenue or gain of the service provider. Our interest lies in comparing the performances of static and dynamic pricing policies in maximizing the gain. We show that the optimal static pricing policies perform as well as the optimal dynamic pricing policies when the buffer size at station 1 becomes large and the arrival rate is either small or large. More importantly, we propose two specific static pricing policies for systems with small and large arrival rates, respectively, and show that each proposed policy produces a gain converging to the optimal gain with an approximately exponential rate as the buffer size before station 1 becomes large. We learn from numerical results that the proposed static policies perform as well as optimal dynamic policies even for a moderate-sized buffer at station 1. We also learn that there exist cases where optimal static pricing policies are, however, neither optimal nor near-optimal.

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