Topic：Service Pricing with Loss Averse Customers

Time: 26 April 2016， 8:30am

Site：B127

Speaker：Yulan (Amanda) Wang

Dr Yulan Wang is currently an assistant professor in the Department of the Logistics and Maritime Studies at Faculty of Business of the Hong Kong Polytechnic University. She received her Ph.D degree in Business Administration from Duke University. She obtained both her BS degree and MS degree from Shanghai Jiao Tong University. Her research work has been published in leading academic journals such as Management Science, Operations Research, Production and Operations Management, Naval Research Logistics and others. Dr Wang’s research interests include supply chain outsourcing, the application of game theory in supply chain design and coordination, and the behavior issues in operations management. She serves as the associate editor for Omega and the guest editors for Decision Sciences and the Journal of the Operational Research Society.

Content：

We consider a queueing system in which customers are loss averse towards both price and delay attributes: customers compare these two attributes to their rational expectations of the outcomes, with losses being more painful than equal-sized gains being pleasant. We first study customers' equilibrium queueing strategies. We find that, in contrast to the traditional case in which loss aversion is not considered, there could exist three equilibrium strategies, among which one is is preferred in the sense that customers’ utility is highest at this equilibrium. We then study the optimal pricing problem for a monopoly server. We show that loss aversion polarizes queues, making long queues even longer and short queues even shorter. Furthermore, loss aversion towards the delay attributes drives down the optimal price whereas loss aversion towards the price attribute pushes up the optimal price. We also find that profit- and welfare-maximizing prices are not the same in a monopoly market. Finally we consider pricing competition in a duopoly market and find that the conclusions depend on the capacity relative to the market size. Interestingly, with loss-averse customers, a firm can obtain a higher profit in a duopoly market than that in a monopoly market. (joint with Yang Liu and Pengfei Guo)