Optimal Scheduling and Incentive Compatible Pricing for a Service System with Quality of Service Guarantees

• Published in: Manufacturing & service operations management Vol. 11; no. 3; pp. 375 - 396
• Main Authors: Hsu, Vernon N, Xu, Susan H, Jukic, Boris
• Format: Journal Article
• Language: English
• Published: Linthicum INFORMS 01.07.2009; Institute for Operations Research and the Management Sciences
• Series: Manufacturing & Service Operations Management
• Subjects: capacity planning and investment; Forecasts and trends; Guarantees; Organization theory; Pricing; Pricing policies; Quality management; Quality of service; Resource allocation; Scheduling; Scheduling algorithms; service operations; Services industry; Studies; Technology application; technology management and process design; Transfer pricing; United States
• ISSN: 1523-4614; 1526-5498
• DOI: 10.1287/msom.1080.0226

This paper proposes a resource allocation and pricing mechanism for a service system that serves multiple classes of jobs within an organization. Each class of service request is subject to a class-dependent quality of service (QoS) guarantee on the expected delay bound, which may be imposed by business rules in an organization or other application-specific technical constraints. We develop an extension of a resource allocation and pricing mechanism for an M / M /1 system. In contrast to the system without the QoS guarantee, where a fixed priority scheduling policy—known as the c µ rule—is optimal, we show that the system may need to adopt a more general randomized priority scheduling policy to maximize the overall system profit. We also develop a transfer pricing scheme that is both optimal and incentive compatible, allowing users to act in their self-interests while collectively achieving the system optimum. We show that the pricing scheme with the QoS guarantee depends on the scheduling policy implemented and has different characteristics from that without the QoS guarantee.