Abstract
We model a two-tier queuing system with free and toll service options as two parallel M/M/1 servers. We solve for the welfare-maximizing toll service capacity and toll subject to the constraint that the toll service cover its costs. If the free and toll services are both used in equilibrium, a larger free-service capacity implies longer expected waiting time for the free service and lower welfare: an analogue to the Downs-Thomson paradox in transportation economics. The paradox is caused by the presence of scale economies in the toll service combined with the requirement that it be self-financing.
| Original language | English |
|---|---|
| Pages (from-to) | 315-322 |
| Number of pages | 8 |
| Journal | Manufacturing and Service Operations Management |
| Volume | 16 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 1 Jan 2014 |
Keywords
- Downs-Thomson paradox
- Equilibrium arrival rates
- Pricing and capacity decisions
- Queuing system
- Two-tier service system
ASJC Scopus subject areas
- Strategy and Management
- Management Science and Operations Research