Blind Queues: The Impact of Consumer Beliefs on Revenues and Congestion

Cui, Shiliang; Veeraraghavan, Senthil K.

doi:10.1287/mnsc.2015.2320

Cited by 65 publications

(22 citation statements)

References 30 publications

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“…Huang and Chen (2015) study a service provider's pricing and service rate decisions when faced with customers who estimate the expected waiting cost based on past experiences and anecdotal reasoning. Cui and Veeraraghavan (2016) consider customers who hold arbitrary beliefs about service rate and study the service provider's decision to disclose the true service rate. Although our paper also focuses on customer bounded rationality in service systems, it is fundamentally different from this literature.…”

Section: Related Literaturementioning

confidence: 99%

Managing Service Systems with Unknown Quality and Customer Anecdotal Reasoning

2016

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We consider service systems where customers do not know the distribution of uncertain service quality and cannot estimate it fully rationally. Instead, they form their beliefs by taking the average of several anecdotes, the size of which measures their level of bounded rationality. We characterize the customers' joining behavior and the service provider's pricing, quality control, and information disclosure decisions. Bounded rationality induces customers to form different estimates of the service quality and leads the service provider to use pricing as a market segmentation tool, which is radically different from the full rationality setting. As customers gather more anecdotes, the service provider may first decrease and then increase price, and the revenue is U-shaped. Interestingly, a larger sample size may harm consumer surplus, although it always benefits social welfare. When the service provider also has control over quality, we find that it may reduce both quality and price as customers gather more anecdotes. In addition, a high-quality service provider may not disclose quality information if the sample size is small, while a low-quality service provider may disclose if the sample size is large. Furthermore, as the expected waiting cost increases, information non-disclosure is more attractive, thereby highlighting the importance of incorporating customer bounded rationality in congested settings.

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Section: Related Literaturementioning

confidence: 99%

Managing Service Systems with Unknown Quality and Customer Anecdotal Reasoning

2016

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“…A third stream of work on information disclosure in queues focuses on the information about service rate and arrival rate, including Guo et al. (), Debo and Veeraraghavan (), Cui and Veeraraghavan (), and Afeche and Ata (). Guo et al.…”

Section: Literature Reviewmentioning

confidence: 99%

“…() and Debo and Veeraraghavan () assume that customers do not know the service rate but have information on its distribution. Cui and Veeraraghavan () consider “blind queues,” in which customers only know some vague information about service rate. Afeche and Ata () propose the “learning‐and‐earning” problem where customers are classified into patient and impatient customers but the proportion of each type is unknown.…”

Section: Literature Reviewmentioning

confidence: 99%

“…A third stream of work on information disclosure in queues focuses on the information about service rate and arrival rate, including , Debo and Veeraraghavan (2014), Cui and Veeraraghavan (2014), and Afeche and Ata (2013). and Debo and Veeraraghavan (2014) assume that customers do not know the service rate but have information on its distribution.…”

Section: Literature Reviewmentioning

confidence: 99%

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Cyclic Pricing When Customers Queue with Rating Information

Huang

Guo

Wang

2019

Production and Operations Management

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Consider a situation where a service provider serves two types of customers, sophisticated and naive. Sophisticated customers are well‐informed of service‐related information and make their joining‐or‐balking decisions strategically, whereas naive customers do not have such information and rely on online rating information to make such decisions. We demonstrate that under certain conditions a service provider can increase its profitability by simply “dancing” its price, that is, replacing the static pricing strategy with a high‐low cyclic pricing strategy. The success of this strategy relies on two key conditions: the potential market size is large enough so that congestion is a key concern in the service system, and the rating provides the average price and average utility information. Finally, we show that the cyclic pricing strategy is not socially optimal.

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“…In addition to the two studies mentioned above (ie, Huang et al 2013 andLi et al 2016), several works study similar customer behavior attributable to limited information about product quality. A group of studies examine customer herding behavior caused by limited information on service quality; see Afèche, Baron, and Kerner (2013), Cui and Veeraraghavan (2016), Debo and Veeraraghavan (2014) and Kremer and Debo (2015). Another group of works studies customers' decisions using anecdotal reasoning; that is, given a limited sample size, customers make purchase decisions by following others' experience (Huang & Chen, 2015;Huang & Liu, 2015).…”

Section: Introductionmentioning

confidence: 99%

Price and capacity decisions of service systems with boundedly rational customers

Guo

Lian³

2017

Naval Research Logistics

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We consider price and capacity decisions for a profit‐maximizing service provider in a single server queueing system, in which customers are boundedly rational and decide whether to join the service according to a multinomial logit model. We find two potential price‐capacity pair solutions for the first‐order condition of the profit‐maximizing problem. Profit is maximized at the solution with a larger capacity, but minimized at the smaller one. We then consider a dynamically adjusting capacity system to mimic a real‐life situation and find that the maximum can be reached only when the initial service rate is larger than a certain threshold; otherwise, the system capacity and demand shrink to zero. We also find that a higher level of customers’ bounded rationality does not necessarily benefit a firm, nor does it necessarily allow service to be sustained. We extend our analysis to a setting in which customers’ bounded rationality level is related to historical demand and find that such a setting makes service easier to sustain. Finally we find that bounded rationality always harms social welfare.

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Blind Queues: The Impact of Consumer Beliefs on Revenues and Congestion

Cited by 65 publications

References 30 publications

Managing Service Systems with Unknown Quality and Customer Anecdotal Reasoning

Managing Service Systems with Unknown Quality and Customer Anecdotal Reasoning

Cyclic Pricing When Customers Queue with Rating Information

Price and capacity decisions of service systems with boundedly rational customers

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