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DYNAMIC PRICING TO CONTROL LOSS SYSTEMS WITH QUALITY OF SERVICE TARGETS

Published online by Cambridge University Press:  16 February 2009

Robert C. Hampshire ,
William A. Massey  and
Qiong Wang
Robert C. Hampshire
Affiliation:
Carnegie Mellon University, Pittsburgh, PA E-mail: hamp@andrew.cmu.edu
William A. Massey
Affiliation:
Princeton University, Princeton, NJ E-mail: wmassey@princeton.edu
Qiong Wang
Affiliation:
Bell Laboratories, Murray Hill, NJ E-mail: qwang@research.bell-labs.com
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Abstract

Numerous examples of real-time services arise in the service industry that can be modeled as loss systems. These include agent staffing for call centers, provisioning bandwidth for private line services, making rooms available for hotel reservations, and congestion pricing for parking spaces. Given that arriving customers make their decision to join the system based on the current service price, the manager can use price as a mechanism to control the utilization of the system. A major objective for the manager is then to find a pricing policy that maximizes total revenue while meeting the quality of service targets desired by the customers. For systems with growing demand and service capacity, we provide a dynamic pricing algorithm. A key feature of our solution is congestion pricing. We use demand forecasts to anticipate future service congestion and set the present price accordingly.

Type
Research Article
Information
Probability in the Engineering and Informational Sciences , Volume 23 , Issue 2 , April 2009 , pp. 357 - 383
Copyright
Copyright © Cambridge University Press 2009

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