Group Service or Individual Service? Differentiated Pricing for a Private or Public Service Provider

Facilitated by information technology and online platforms, group service has emerged in many service systems, such as one-to-many tour guide service, one-to-many tutoring courses and one-to-many medical diagnosis. We consider a service provider offering both group service and individual service and model it as a single-server queue in which customers with heterogeneous waiting costs make both joining/balking and group/individual service decisions. We analyze and compare the equilibrium differentiated pricing strategies and customer equilibrium behavior under profit maximization (system C) and social welfare maximization (system S). We find that (i) the socially optimal price is lower than the profit-maximizing price and, correspondingly, a larger total number of customers is served under system S than under system C; (ii) it is more likely for system S to provide group service and to achieve full market coverage than system C; (iii) both equilibrium service volume and service price are nonmonotonic functions of the potential arrival rate, which is contrary to classical theory due to the follow-the-crowd (FTC) characteristic of the group service; (iv) compared with the scenario where only individual service is provided, providing both services can achieve a win-win result for the firm and customers and the value of group service is most significant when the potential arrival rate is moderate; (v) through numerical studies, we observe that there exists an optimal group size under both systems.