Abstract
We
examine whether priority queues benefit or hurt customers in a setting in which
customers are privately informed of their per-unit-time waiting cost.
Implementing a priority queue thus means posting a menu of expected waits and
out-of-pocket prices that are incentive compatible. Whether priorities increase
or decrease consumer surplus relative to first-in,
first-out service depends on the model of customer utility and the on the
distribution of customer waiting costs. If all customers have the same value of
the service independent of their waiting costs, priorities essentially always lower
consumer surplus. If a customer’s value of the service is an increasing
function of her waiting cost, priorities lower surplus if the distribution of
waiting costs has a decreasing mean residual life. If the mean residual life is
increasing, then priorities make consumers better off. We show that the results
across utility models are linked by an elasticity measure. If an appropriate
measure of waiting cost is elastic, consumer surplus falls with priorities. We
also explore how priorities impact individual customers and show that they
potentially make all customers worse off. It is possible that low priority
customers may pay a higher out-of-pocket price than they would under first-in,
first-out service.