Social interactions in service operations: Demand-inducing vs. congestion-aggravating

Abstract

Consumers tend to perceive a service of higher value when more consumers, under the influence of others, make the same choice. In this article, we investigate the impact of social interactions in service operations under various price, waiting time target, and capacity decisions. The service is delivered through an M/M/1 queue system which attempts to achieve a waiting time target through a volume-based capacity allocation policy. Consumers perceive a positive (negative) value of the service if the queue length is longer (shorter) than the base queue length – an anchor point in their value perception. We examine the relationship of the intrinsic value of the service and the consumer’s value perception (in terms of the queue length anchor point) with the price, the waiting time target, and the capacity decisions. 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, waiting time target, 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.