Equilibrium Joining Strategies and Optimal Control of a Make-to-Stock Queue

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

18 Scopus Citations
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Author(s)

Detail(s)

Original languageEnglish
Pages (from-to)1513-1527
Journal / PublicationProduction and Operations Management
Volume25
Issue number9
Online published2 May 2016
Publication statusPublished - Sep 2016
Externally publishedYes

Abstract

We consider a make-to-stock, finite-capacity production system with setup cost and delay-sensitive customers. To balance the setup and inventory related costs, the production manager adopts a two-critical-number control policy, where the production starts when the number of waiting customers reaches a certain level and shuts down when a certain quantity of inventory has accumulated. Once the production is set up, the unit production time follows an exponential distribution. Potential customers arrive according to a Poisson process. Customers are strategic, i.e., they make decisions on whether to stay for the product or to leave without purchase based on their utility values, which depend on the production manager's control decisions. We formulate the problem as a Stackelberg game between the production manager and the customers, where the former is the game leader. We first derive the equilibrium customer purchasing strategy and system performance. We then formulate the expected cost rate function for the production system and present a search algorithm for obtaining the optimal values of the two control variables. We further analyze the characteristics of the optimal solution numerically and compare them with the situation where the customers are non-strategic. © 2016 Production and Operations Management Society

Research Area(s)

  • equilibrium analysis, make-to-Stock queue, strategic customers, vacation queue

Citation Format(s)

Equilibrium Joining Strategies and Optimal Control of a Make-to-Stock Queue. / Li, Qingying; Guo, Pengfei; Li, Chung-Lun; Song, Jing-Sheng.

In: Production and Operations Management, Vol. 25, No. 9, 09.2016, p. 1513-1527.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review