Case—Bidding on Priceline

Abstract

Bidding on Priceline A student wants to travel to New York. He has purchased his airline ticket and is starting to schedule his three-day trip. First, he thinks he should rent a car at the airport. His friends give him two suggestions: (1) go to www.priceline.com to “name his own price,” (2) go to a traditional car rental agency website such as www.hertz.com. Priceline.com is an Internet-based corporation offering serviced-based products such as airline tickets, hotel rooms, rental cars, and home mortgages. For its rental car services, Priceline provides a wide array of car types from categories such as economy, standard, and full-sized cars. Once you are on Priceline.com and have selected Rental Cars from the option button, the procedure for bidding on this site is as follows (Figure 1): 1. You choose the type of place where you want to rent a car, the pick-up city, and the pick-up and drop-off date and time. 2. You then enter the flight information, driver information, and (most importantly) name your own price for renting this particular type of car (Figure 2). 3. If you offer an extremely low price, Priceline will inform that your offer is not likely to be accepted by any agency and provide suggestions about how much to bid in order to get the car. You are allowed to bid only once for each type of car, which means you have to be careful about the amount of money you bid, potentially paying full rate if not successful (Figure 3). 4. Whether you follow this suggestion or not, Priceline will process your request as you go to the next step and let you enter personal identification and credit card information. 5. You will be notified if your offer is accepted within one hour. There are two possible results: either you can rent the car at the price you named or your offer is rejected and you cannot bid on this car class again for this particular arrival/drop-off combination. When the bidder offers a low bid Priceline will provide some insight into potentially more successful bids without offering specific information. For example, Figures 4 and 5 are Priceline suggestions offered after a user enters very low bids for standard and full-sized cars. An alternative option is to go to www.hertz.com to make a reservation for renting the car. Figure 6 is a price quote from Hertz.com offered on the same date as the bids on Priceline.com in Figures 4 and 5. Now there are two options for our would-be traveler—he can either bid on Priceline.com or make a reservation on Hertz.com. Given his student status, he wants to spend as little money as possible. Obviously, he should try Priceline.com first, since it gives him a chance (without any cost except time) of renting a car at a very low price. He is traveling alone with very little luggage so it won’t make much difference whether he chooses an economy, standard, or full-sized car. Since he gets only one chance to bid for each type of car, he needs to work out a solution so that he can take the maximum advantage of Priceline.com. As a final thought he wonders if he can extract any information from failed bids, i.e. if his first bid is unsuccessful, how should he alter his subsequent bids?