TY - JOUR
T1 - Optimal pricing and capacity sizing for the GI / GI / 1 queue
AU - Lee, Chihoon
AU - Ward, Amy R.
N1 - Publisher Copyright:
© 2014 Elsevier Ltd. All rights reserved.
PY - 2014/12
Y1 - 2014/12
N2 - We consider how to jointly set the upfront, or static, price and capacity in order to maximize the steady-state expected profit in a GI/GI/1 queue with a high rate of prospective customer arrivals. We show that the optimal price and service rate for the GI/GI/1 queue are such that the system operates in heavy traffic. Then, since it is not possible to provide analytic expressions for the exact optimal price and service rate, we use the solution to an approximating (static) diffusion control problem to propose a price and service rate that we can prove is asymptotically optimal.
AB - We consider how to jointly set the upfront, or static, price and capacity in order to maximize the steady-state expected profit in a GI/GI/1 queue with a high rate of prospective customer arrivals. We show that the optimal price and service rate for the GI/GI/1 queue are such that the system operates in heavy traffic. Then, since it is not possible to provide analytic expressions for the exact optimal price and service rate, we use the solution to an approximating (static) diffusion control problem to propose a price and service rate that we can prove is asymptotically optimal.
KW - Heavy traffic
KW - Pricing and capacity sizing
KW - Steady-state distributions
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U2 - 10.1016/j.orl.2014.09.005
DO - 10.1016/j.orl.2014.09.005
M3 - Article
AN - SCOPUS:84907897078
SN - 0167-6377
VL - 42
SP - 527
EP - 531
JO - Operations Research Letters
JF - Operations Research Letters
IS - 8
ER -