Martin Lariviere (Northwestern) will present Priority Queues and Consumer Surplus
Abstract
We examine whether priority queues benefit or hurt customers in a setting where customers are privately informed of their per-unit-time waiting cost. Implementing a priority queue means posting a menu of expected waits and out-of-pocket prices that are incentive compatible. Whether priorities increase or decrease consumer surplus relative to first-in, first-out service depends on the model of customer utility and the distribution of customer waiting costs. If all customers have the same value of the service independent of their waiting costs, priorities essentially always lower consumer surplus. If a customer's value of the service is an increasing function of their waiting cost, priorities lower surplus if the distribution of waiting costs has a decreasing mean residual life. If the mean residual life is increasing, then priorities make consumers better off. We show that the results across utility models are linked by an elasticity measure. If an appropriate measure of waiting cost is elastic, consumer surplus falls with priorities.
