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Reservation Policies in Queues: Advance Deposits, Spot Prices, and Capacity Allocation
Author(s) -
Oh Jaelynn,
Su Xuanming
Publication year - 2018
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/poms.12821
Subject(s) - reservation , queue , service (business) , microeconomics , operations research , computer science , business , reservation price , queueing theory , industrial organization , operations management , finance , economics , marketing , computer network , engineering
At firms such as restaurants, customers either make reservations in advance or join queues on the spot. Reservation holders may not show up, and walk‐ins have to wait. Using a game‐theoretic model between the firm and customers, this paper studies the following: (i) reservation deposits and service prices, and (ii) capacity allocation between reservations and walk‐ins. We have three main results: (i) When reservation no‐shows lead to wasted capacity that cannot be reallocated, the firm should front‐load all charges into the reservation deposit; (ii) The firm should charge a lower service price to reservation‐holders than to walk‐in customers when it decides to serve both; (iii) Less capacity should be allocated for reservations as the potential market size grows; with sufficiently large potential demand, the firm should stop taking reservations. Our results follow from key operational tradeoffs between reservations and queues: reservations permit 100% utilization, but queues operate at less than 100%; however, reservations have constant returns to scale, while queues enjoy increasing returns.