Optimal pricing and scheduling control of product shipping

Abstract

© 2015 Wiley Periodicals, Inc. Naval Research Logistics 62: 215-227, 2015 © 2015 Wiley Periodicals, Inc. In this article, we seek to understand how a capacity-constrained seller optimally prices and schedules product shipping to customers who are heterogeneous on willingness to pay (WTP) and willingness to wait (WTW). The capacity-constrained seller does not observe each customer's WTP and WTW and knows only the aggregate distributions of WTP and WTW. The seller's problem is modeled as an M/M/Ns queueing model with multiclass customers and multidimensional information screening. We contribute to the literature by providing an optimal and efficient algorithm. Furthermore, we numerically find that customers with a larger waiting cost enjoys a higher scheduling priority, but customers with higher valuation do not necessarily get a higher scheduling priority.