Managing service facilities with endogenous arrival and service rates : Managing service facilities with endogenous arrival and service rates

We conduct a simulation-based experiment to analyze how past experiences in a service facility system affectcustomers’ and service providers’ behavior. We study the problem faced by service providers in decidingby how much to adjust the capacity of their facility when captive repeat customers choose which facilityto join based on their expected sojourn times. The customers’ decision-making process differs from that ofservice providers in that the former is based on the customers’ experience, whereas the latter is based on themost recent information service providers have regarding demand. Customers use their previous experienceand that of their neighbors to update their perceptions of the future average sojourn time, whereas serviceproviders form perceptions of the future arrival rate. We use cellular automata to model the interactionbetween customers and service providers. We perform simulations to assess the way the customers’ andservice providers’ decisions evolve and affect system behavior. Our findings demonstrate that the system westudy possesses a certain degree of path dependence. The primary conclusion is that the more conservativeservice providers are regarding new information, the larger the market share they achieve, and the lower theprobability that their facility will shut down