If you are not familiar with Priceline.com Inc., go to its Web site. Assume that an individual “names a price” of $90 on Priceline.com for a room in Miami, Florida, on September 3. Assume that September 3 is a Saturday, with low expected room demand in Miami at a Marriott International, Inc., hotel, so there is excess room capacity. The fully allocated cost per room per day is assumed from hotel records as follows:
Housekeeping labor cost* ........ $ 30
Hotel depreciation expense ......... 50
Cost of room supplies (soap, paper, etc .) .... 2
Laundry labor and material cost* ........ 6
Cost of desk staff .............. 8
Utility cost (mostly air conditioning) ..... 4
Total cost per room per day ........ $100
* Both housekeeping and laundry staff include many part-time workers, so that the workload is variable to demand.
Should Marriott accept the customer bid for a night in Miami on September 3 at a price of $90?