It takes time to process purchases and as a result a queue of customers may form. The pricing and capacity (service rate) decision of a monopolist who must take this into account are characterized. We find that an increase in the average number of customers arriving in the market either has no effect on the price, or else causes the firm to reduce the prince in the short run. In the long run the firm will increase capacity and raise the price. When customer preferences are linear, the equilibrium is socially efficient. When preferences are not linear, the equilibrium will not normally be socially efficient.
|Original language||English (US)|
|Number of pages||13|
|Journal||IIE Transactions (Institute of Industrial Engineers)|
|State||Published - Jun 2004|
Bibliographical noteFunding Information:
For research support, the authors would like to acknowledge respectively: a Killam Faculty Research Fellowship and grants from the NSERC (Canada) and the NSFC (China), and a grant from the SSHRC (Canada) and BI Ghert Family Foundation. We also thank Vojislav Maksimovic and Barbara Spencer for helpful comments. Most of this research was performed while the first author was with the Sauder School of Business at UBC.
Copyright 2008 Elsevier B.V., All rights reserved.