Peaker Outsourcing for Service Systems with Time-Varying Arrival Rates

This paper studies a service system which functions as a cost center and has to meet quality constraints under non-stationary arrival rates. We propose the use of ´peaker´ capacity services, characteristically used by the electric power industry for handling peak-load demands for power generation. Analogously, specialized teams of servers handle the base-load of transactions every day, and the in-house or outsourced peaker team services the peak-load demand. We study how peaker ownership choice and cost and profit optimizing behavior influence optimal peaker architecture (outsourcing and capacity decisions).