Pricing policies for services by facilities with Weibull lifetimes

Yi Fang Lin, Ruey Huei Yeh, Hsiu Chen Lin, Gino K. Yang, Chyn Yng Yang

Research output: Contribution to journalArticle

2 Citations (Scopus)

Abstract

To make good profits, pricing is a competitive weapon of service firms. This paper is concerned with pricing strategies for services with substantial facility maintenance costs. To address the problem, a mathematical framework that incorporates service demand and facility deterioration is proposed. The facility and customers constitute a service system driven by Poisson arrivals and exponential service times. The most common log-linear customer demand and Weibull-distributed facility lifetime are also adopted. By examining the linkage between customer demand and facility deterioration in profit model, pricing policies of the service are investigated. Then analytical conditions of customer demand and facility lifetime are derived to achieve a unique optimal pricing policy. Finally, numerical examples are presented to illustrate the effects of parameter variations on the optimal pricing policy.

Original languageEnglish
Pages (from-to)218-235
Number of pages18
JournalService Industries Journal
Volume33
Issue number2
DOIs
Publication statusPublished - Feb 2013

Keywords

  • facility deterioration
  • profit maximization
  • strategic pricing

ASJC Scopus subject areas

  • Management of Technology and Innovation
  • Strategy and Management

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