Managing Congestion when Consumers Choose their Service Times: The Important Role of Time Limits
Dr. Ella Segev, Industrial Engineering and Management at Ben-Gurion University of the Negev
Date: Feb 28, Friday
Time: 1:40 p.m.
A main challenge that service providers face when managing service systems is how to generate value and regulate congestion at the same time. To this end, classical queueing models suggest managers charge per-use fees and invest in capacity to speed up the service. However, in discretionary services, in which customers value time in service and choose how long to stay, per-use fees result in suboptimal performance and speeding-up does not apply. We consider two alternative mechanisms: price rates and time limits. We study a queueing model of a service provider and rational customers who are heterogeneous in their requirements for service durations, though they may be flexible in deviations from their time needs. Customers incur disutility from waiting and choose whether to join and how long to stay in service. Price rates and time limits benefit providers differently. Price rates are effective because of their superiority in extracting rents from heterogeneous customers. Time limits reduce waiting times and benefit both firms and customers, especially if congestion levels are high and customers have flexible time needs. Revenue maximizing firms benefit from implementing both. Social planners who seek to maximize consumer welfare, however, should focus on regulating congestion and should therefore offer the service for free, but implement time limits. Even if service providers can implement an optimal price mechanism, time limits prove useful when congestion is an issue.
Ella Segev is an Assistant Professor at the Department of Industrial Engineering and Management at Ben-Gurion university of the Negev in Israel. Ella received her Ph.D. from the Coller school of business at Tel-Aviv University. Before joining Ben-Gurion University, she was a post-doc at the Institute for Advanced Study at Princeton, NJ, USA and then an assistant professor at the Industrial Engineering and Management faculty at the Technion, Israel Institute of Technology. Her research applies game theoretic tools to study behavior of individuals in a wide variety of Economics situations such as bargaining, auctions, contests, and queueing.