Pricing with delivery time information sharing decisions in service systems

AbstractHighlights •In service systems congestion can be controlled by pricing and information sharing.•Prices are monotone with respect to the workload in the system.•Information sharing may reverse the direction of monotonicity of prices.•Customer sensitivity and price precision impact the preferred information scheme.•Information sharing affects the benefit of dynamic pricing. AbstractWe study the pricing problem of a service provider who informs arriving customers about the anticipated delivery times. Besides quoting prices, the provider decides on the amount of delivery time information to be revealed to the customers. Price and delivery time announcement decisions affect the behavior of the customers who are sensitive to price, delivery time, as well as to the accuracy of the estimate of the delivery time, which in turn affects the profitability of the firm. We analytically show that, when prices are quoted dynamically, pricing policy has a monotone structure under certain conditions and that the amount of information revealed to the customers may reverse the direction of monotonicity. Through numerical studies, we identify that customer reservation price, price precision and customer sensitivity to accuracy of the estimate of the delivery time determine which information availability scheme is more preferable by the service provider. Information availability scheme and pricing scheme may affect the information sharing decision. Information sharing may in turn affect how strongly pricing scheme is preferred. Intuitively, dynamic pricing is always more preferable than static pricing, however the benefit is higher when the delivery time information is not shared while it may only be marginal when the amount of information shared is high.