UCL School of Management is delighted to welcome Pnina Feldman, Boston Uni, to host a seminar discussing “Controlling Congestion when Consumers Choose their Service Times’
Two main challenges that service providers face when managing service systems is how to generate value and control congestion at the same time. To this end, classical queueing models suggest managers charge a per-use fee and invest in capacity to speed up the service. However, in discretionary services where 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 that are duration-based fees and time limits. We derive revenue and welfare implications and highlight operational consequences of these mechanisms. We employ a queueing model of a service provider and rational consumers 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. Service providers can charge per-use fees or price rates and may also decide to limit customers’ time in service. Price rates and time limits benefit providers in different ways. Price rates are effective because of their superiority in extracting rents from heterogeneous customers and time limits successfully regulate congestion. 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. Time limits reduce waiting times and benefit both firms and consumers, especially if congestion and consumer flexibility are high. Thus, we conclude that providers of discretionary services should not shy away from setting time limits.