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Queuing for Expert Services

Graduate School of Business, University of Chicago, Chicago, Illinois 60637
College of Management, Georgia Institute of Technology, Atlanta, Georgia 30308
Technology and Operations Management, INSEAD, 77305 Fontainebleau, France
ldebo{at}chicagogsb.edu
beril.toktay{at}mgt.gatech.edu
luk.van-wassenhove{at}insead.edu

We consider a monopolist expert offering a service with a "credence" characteristic. A credence service is one in which the customer cannot verify, even after a purchase, whether or not the amount of prescribed service was appropriate; examples include legal, medical, or consultancy services, and car repair. This creates an incentive for the expert to "induce service," that is, to provide unnecessary services that add no value to the customer, but that allow the expert to increase his revenues. We focus on the impact of an operations phenomenon on service inducement—workload dynamics due to the stochasticity of interarrival and service times. To this end, we model the expert's service operation as a single-server queue. The expert determines the service price within a fixed and variable fee structure and determines the service inducement strategy. We characterize the expert's combined optimal price structure and service inducement strategy as a function of service capacity, market potential, inducement opportunity, value of service and waiting cost. We find that service inducement is a means to dynamically skim customer surplus with state-independent prices and provision of slower service to customers that arrive when the expert is idle. We conclude with design implications of our results in limiting service inducement.

Key Words: operations-economics interface; services; queuing
History: Received: August 23, 2004;