Capacity-driven pricing mechanism in special service industries

We propose a capacity-driven pricing mechanism for a class of service industries in which the customer behavior, the price–demand relationship, and the competition are distinct from other industries. The customers, in these industries, typically do not plan in advance and make a strategic decision to purchase the service. Our observations also revealed that the price–demand relationship in these industries could not be defined by fitted curves and the competition is largely local. We analyze both ‘risk-neutral’ and ‘risk-aversion’ based pricing models and conclude that the proposed capacity-driven model could define an ‘optimal’ solution, under mild assumptions. The resulting pricing mechanism has yielded positive results at our industrial partner, since its implementation in 2005.