An optimal mechanism charging for priority in a queue

Document pages: 14 pages

Abstract: We derive a revenue-maximizing scheme that charges customers who arehomogeneous with respect to their waiting cost parameter for a random fee inorder to become premium customers. This scheme incentivizes all customers topurchase priority, each at his her drawn price. We also design arevenue-maximizing scheme for the case where customers are heterogeneous withrespect to their waiting cost parameter. Now lower cost parameter customers areencouraged to join the premium class at a low price: Given that, those withhigh cost parameter would be willing to pay even more for this privilege.