Bidding on Priceline
Anderson, Chris K.; Wilson, John G.; Zhang, Gouren
Priceline.com is an Internet-based corporation offering services (airline tickets, hotel rooms, rental cars, and home mortgages) with the option for consumers to dictate prices. Priceline's original success stemmed from its innovative “name your price” approach whereby consumers bid for service with Priceline to find a willing provider at the bid price. Consumers are only allowed to bid once on a service so they must be strategic in bidding—bid too low and potentially lose out on service, bid too high and overpay for the service. While they are only allowed to bid once per product, bidders can slightly alter their service and potentially re-bid in an effort to get new information (from failed attempts)—such alterations may include a different class of hotel (3 star versus 4), a flight with 1 stop versus direct, or (as in the case below) a different class (economy versus luxury) of rental car. The case is designed to cover a broad range of topics while introducing students to auctions. The case teaches strategic bidding while covering probability, decision analysis, and integer programming. The case has had great success at the undergraduate and MBA levels as students enjoy the setting, are familiar with Priceline, and immediately see an everyday use of management science.
bidding; Priceline; auctions; pricing
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