Multiproduct monopoly: a queueing approach

Using queuing theory to model traditional market structures can provide interesting insights into the underlying mechanisms. Many characteristics of markets are well known, but queuing models often illustrate these in a novel manner. A stochastic model of multiproduct monopoly with impatient consumers is developed. The model explicitly allows for congestion effects. A monopoly that offers two services distinguished only by a time element, that is, where two distinct service rates apply is considered. Two different classes of consumer are considered according to their waiting time tolerances. Given assumptions about dynamic consumer choice behaviour, queuing theory techniques are used to derive market share and effective demand details, for each class of consumer, in terms of the firm's pricing, quality, and processing speed policy. Economic analysis is performed allowing for the possibility of offering a reward when the consumer has to face a long queue. The economic summary provided forms the basis of a subsequent sensitivity analysis.