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Optimal Admission and Pricing Control Problem with Sideline Profit, Customer Order Cancellation, and No Waiting Room  

Son, Jae-Dong (Department of Industrial and Information Systems Engineering Soongsil University)
Publication Information
Management Science and Financial Engineering / v.14, no.1, 2008 , pp. 35-63 More about this Journal
Abstract
We discuss the problem of selecting profitable customer orders arriving at a company providing two classes of services. For an arriving customer order for the first class, the company 1) makes a decision whether to accept or reject it (admission control), or 2) decides a price of the order to offer to an arriving customer (pricing control). The customer order undergoing processing in the system may be cancelled owing to unavoidable circumstances with the customer. The second class of service is provided as a sideline, which prevents the server from being idle when all the customer orders for the first class are completed and delivered. This yields the sideline profit. We discuss both admission control and pricing control problems in an identical framework as well as examine the structure of the optimal policies maximizing the total expected present discounted net profit gained over an infinite planning horizon.
Keywords
Admission Control; Pricing Control; Sideline; Order Cancellation;
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