Cover: Optimization of Price and Quality in Service Systems.

Optimization of Price and Quality in Service Systems.

Published 1971

by John G. Wirt

Purchase Print Copy

 Format Price
Add to Cart Paperback184 pages $40.00

Discussion of techniques for quantitative determination of the optimal prices and service quality in a wide class of systems. A probabilistic demand model sensitive to both price and quality is derived from the microeconomic concept that a consumer chooses the service that maximizes the difference between willingness to pay and price. This model is then aggregated to obtain a partial equilibrium macroeconomic model of demand. A Bayesian technique is developed for using data to reduce uncertainty about consumers' values. Following this, criteria are listed for optimizing prices and choosing among alternative qualities of service. A stochastic approximation is applied to finding optimal prices in service systems; in the cases tested, only a marginal increase in aggregate social welfare is obtained from establishing multiple priorities. A major shift occurs, however, in the incidence of benefits. 184 pp. Ref.

This report is part of the RAND paper series. The paper was a product of RAND from 1948 to 2003 that captured speeches, memorials, and derivative research, usually prepared on authors' own time and meant to be the scholarly or scientific contribution of individual authors to their professional fields. Papers were less formal than reports and did not require rigorous peer review.

This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited; linking directly to this product page is encouraged. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial purposes. For information on reprint and reuse permissions, please visit

RAND is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.