Priority Queues and Consumer Surplus
Problem definition: We examine whether priority queues benefit consumers relative to first-in first-out service. Academic/practical relevance: Priorities are a commonly recommend way to reduce waiting costs, but it is not clear whether they help customers. Methodology: We build an analytical model that assumes that consumers are privately informed of their waiting cost and cannot observe the queue. Results: Whether priorities increase consumer surplus relative to first-in, first-out service depends on the model of customer utility and on the distribution of waiting costs. If all customers have the same value of the service independent of 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 [increase] surplus if the waiting cost distribution has a decreasing [increasing] mean residual life. Priorities potentially make all customers worse off; low priority customers may pay a higher out-of-pocket price than they would under first-in, first-out service. Managerial implications: Decision makers – whether managers or policy makers – should be cognizant of how priorities impact consumers. While priorities have benefits, they often serve to shift value to from consumers to firms.
Lariviere, Martin. 2020. Priority Queues and Consumer Surplus.LINK