Managing Seasonal Congestion
(A2020-62861)

AUTHORS

Steven Shugan, University of Florida; Aydin Alptekinoğlu, Penn State University

KEYWORDS

Seasonality; Pricing; Capacity-Constraints

ABSTRACT

Seasonality creates demand peaks during predictable seasons, days or hours. We show optimal strategies (pricing and service capacity) depend on the peak type. For example, Arrival peaks, where buyers value services more during peaks (Christmas at Disney), compensating for congestion with lower prices only worsens congestion. Best is to increase peak prices and not exploit greater demand with less service. During Cost (or Gasoline) peaks service providers suffer higher costs (e.g., off-season seafood). Optimal peak prices are either higher with fixed capacity or lower when service can be decreased (lowering costs). Cross-selling (or Popcorn) peaks allow added revenue from cross selling (e.g., movie concessions at mealtimes). Optimal service capacity increases but not necessarily optimal prices. Finally, Consumption peaks only increase consumption. Optimal prices always decrease, but optimal service capacity does not. We provide logic and intuition for each strategy.

REFERENCES

We thank the McKethan-Matherly Foundation for funding.