Sometimes the wait for a restaurant table is too long, and you’re forced to choose between the place you want to eat and a less desirable alternative. Most restaurants assign tables to patrons in the order they arrived, i.e. First In, First Out (FIFO). What if you could jump to the front of the queue without infuriating everyone else in line? New research from Chicago Booth suggests how a smartphone app could make queue jumping fair for all involved.
Motivated by SmartLine, a restaurant waitlist manager iPad app co-developed by Barry Liang, a current MBA student at Chicago Booth, researchers Luyi Yang, Laurens Debo and Varun Gupta searched for the most profitable way an entrepreneur could organize an auction that allows customers standing in line to trade their positions via smartphone. Their findings offer a roadmap for building a maximally profitable queuing app.
The researchers describe an optimal business model in which all customers interested in buying or selling their place in line pay an up-front fee to a broker to gain access to a time-trading platform. The platform allows participants to sell or purchase their spot via an auction.
Each participant’s bid in the auction represents the maximum price she is willing to pay for every minute saved in waiting, and the minimum amount she would accept for every extra minute she spends waiting. Based on the prices participants submitted, the algorithm automatically reorders the line to reflect the new positions, swapping their places in ways that do not affect wait times for line-holders who chose not to participate in the auction. The broker’s platform facilitates payments between customers. The broker makes revenues exclusively from the fee customers paid to gain access to the platform and would not collect additional fees on each transaction. The interesting and counter-intuitive element of the algorithm is that the broker sometimes must prevent trades between participants, in order to maximize its own revenues.
The researchers look at several variations on the model, such as one that involved a broker collecting fees on each trade instead of a mechanism with an up-front fee and trade restriction, and found them to be less profitable for the entrepreneur. They also found that a restaurant that allows a revenue-maximizing entrepreneur to manage its wait list would get an increase in business, even though the service provider does not profit directly from the auction. This is because the broker’s platform improves the efficiency of the waiting line.
Luyi Yang, Laurens Debo, and Varun Gupta, “Trading Time in a Congested Environment,” Working paper, March 2015.