Shall firms withhold exact waiting time information from their customers? A transport example

Abstract

Apps which allow customers to check waiting times in real time on their smartphones become increasingly popular across many industries. Waiting time information is ambiguous in the sense that it is good news for some customers and bad news for other customers depending on whether they get to know that they have to wait short or long times, respectively. This paper studies the strategic choice of information strategies by considering a transport company that charges a uniform price to passengers. Waiting times are determined by headways which are given by the time difference between vehicle departures. The sum of the price and waiting time costs (determined by the waiting times and time valuations) represent the full price of traveling which vary among passengers depending on arrival times at the station. Passengers respond to variations in the full price by adjusting their demand rates in the sense that passengers may use an alternative mode of transport or refuse to travel if they have to wait or expect to wait for too long for the next departure. Two types of information strategies are considered. The company can advertise the exact schedule or advertise only the average lengths of interdeparture times (headways). The analysis shows that the curvature of the demand-rate function in the waiting time is crucial for the choice of information strategies in both the case of profit-maximizing companies and the case of welfare-maximizing companies where welfare is calculated by the sum of profit and consumer surplus. Numerical examples further indicate the crucial role of demand rate curvatures for headway and price choices.