“Pricing and Capacity Allocation for Shared Services” by Dr. Vasiliki Kostami
Dr. Vasiliki Kostami
Assistant Professor of Management Science & Operations Management Science & Operations Dept
The London Business School
We study the pricing and capacity allocation problem of a service provider who serves two distinct customer classes. Customers within each class are inherently heterogeneous in their willingness to pay for service, but their utilities are also affected by the presence of other customers in the system. Specifically, customer utilities depend on how many customers are in the system at the time of service as well as who these other customers are. If the service provider can price discriminate between customer classes, pricing out a class, i.e., operating an exclusive system, can sometimes be optimal and that depends only on classes' perceptions about each other. If the provider must charge a single price, an exclusive system is even more likely. We extend our analysis to a service provider who can prevent class interaction by allocating separate capacity segments to the two customer classes. Under price discrimination, allocating capacity is optimal if our measure of net appreciation between classes is negative. However, under a single-price policy, allocating capacity can be optimal even if this measure is positive. In fact, we show that the nature of asymmetry eventually determines the optimal strategy.