Pricing for Time-constrained Customers: Is Full Price the Full Story?
A conical model in the management of queuing systems assumes consumers base the purchase of a service on its full price, i.e., a linear combination of the monetary price and the expected wait. While analytically convenient, when this assumption holds has been unexplored. We present a model of consumers allocating their time and money between working, overhead activities that do not provide utility, and two leisure activities that increase utility. One leisure activity is continuous; the consumer can allocate any non-negative amount of time or money to it. The second is discrete; consumption requires a fixed amount of time and money. We examine when the decision to purchase the discrete activity depends only on its full price. The full price assumption does hold – in limited cases. Specifically, it depends on how agents are paid. If agents completely control the amount of time they work and earn a constant wage, they base their purchase decision on the full price. If, however, they must work a fixed shift length, the assumption fails and the full price is not sufficient to determine the consumer’s action. How the pay structure affects the pricing of service depends on the shift length. If shift workers must work longer than would be optimal if they controlled their schedule and earned the same hourly wage, a seller raises its price (relative to selling to consumer who control their work hours) and the system is less congested. The reverse holds if shift workers would prefer to work longer at the offered wage. We show that a seller earns more when workers completely control their schedule.
Martin Lariviere, Achal Bassamboo, Simin Li
Lariviere, Martin, Achal Bassamboo, and Simin Li. 2023. Pricing for Time-constrained Customers: Is Full Price the Full Story?.