Revenue Management for a Multiclass Single-Server Queue via a Fluid Model Analysis

Abstract

Motivated by the recent adoption of tactical pricing strategies in manufacturing settings, this paper studies a problem of dynamic pricing for a multiproduct make-to-order system. Specifically, for a multiclass Mn/M/1 queue with controllable arrival rates, general demand curves, and linear holding costs, we study the problem of maximizing the expected revenues minus holding costs by selecting a pair of dynamic pricing and sequencing policies. Using a deterministic and continuous (fluid model) relaxation of this problem, which can be justified asymptotically as the capacity and the potential demand grow large, we show the following: (i) greedy sequencing (i.e., the cμ-rule) is optimal, (ii) the optimal pricing and sequencing decisions decouple in finite time, after which (iii) the system evolution and thus the optimal prices depend only on the total workload. Building on (i)–(iii), we propose a one-dimensional workload relaxation to the fluid pricing problem that is simpler to analyze, and leads to intuitive and implementable pricing heuristics. Numerical results illustrate the near-optimal performance of the fluid heuristics and the benefits from dynamic pricing.