If you are not familiar with Priceline.com Inc., go to its Web site. Assume that an individual “names a price” of $ 85 on Priceline.com for a room in Seattle, Washington, on April 22. Assume that April 22 is a Saturday, with low expected room demand in Seattle 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* .......... $ 38
Hotel depreciation expense .......... 43
Cost of room supplies (soap, paper, etc.) .... 8
Laundry labor and material cost* ....... 10
Cost of desk staff ............. 6
Utility cost (mostly air conditioning) ...... 5
Total cost per room per day......... $ 110
* 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 Seattle on April 22 at a price of $ 85?