(A) study on pricing policies in service industry

Abstract

Since the middle of $20^{th}$ century, there has been a substantial shift from the primary sector of industry (such as mining, agriculture and fishing) and the second sector of industry (manufacturing) to the tertiary sector (service indurstry) in industrialized countries. Usually, services are defined in conventional economic literature as "intangible goods" which are products that cannot actually be seen or touched. In this paper, we deal with two kinds of services that are mobile telephone service and taxi service. First, we consider an optimal pricing policy of the retailer with an obligatory period during which customers are forbidden to change the number and the carrier. Retailers receive a certain portion of the customer’s monthly fee from the corresponding carrier, so they are compensated for the loss incurred from discounts by setting obligatory periods. Considering this, we make a mathematical model of the retailer’s profit and do an analysis of it. Secondly, we deal with a long-call discount policy which is a kind of incremental discount policy. Under this policy, customers get discounts on the fee for the call in excess of a certain minutes (spb), if they make a call longer than sbp. Under this policy, it is expected that call length becomes longer which could result in congestion in the system. So a constraint on service level is added. A mathematical model for the carrier’s profit is developed. Based on the analysis of the model, a heuristic search procedure is set up to find an optimal policy. Finally we investigate an incremental discount policy on the taxi fare. It is assumed that customers arrive following a Poisson process with price-sensitive arrival rates. With the objective of maximizing the average profit of taxi, a mathematical model is developed based on regenerative process. Through an analysis of the model we show that the incremental discount policy is beneficial to the taxi company when the customer arrival rate is relativel...