If you bought and held shares of the Priceline Group, the online provider of travel-related reservations and
Question:
If you bought and held shares of the Priceline Group, the online provider of travel-related reservations and search services, from 2014 to 2019, you would have been one happy camper. During that time, the share price appreciated by 50%, beating the performance of the S&P 500, a widely used overall measure of stock prices, resulting in a company valuation of nearly $80 billion for the companyʼs stock.
Even more remarkable is the fact that in 2002, the company was in such deep trouble that many doubted it would survive. From 1999 to 2002, Priceline lost 95% of its value, going from a company valuation of $9 billion to a paltry $425 million. What went so terribly wrong and then so incredibly right at Priceline?
When the company (originally known as Priceline.com) was formed in 1998, investors were immediately impressed by how it used the internet to revolutionize the travel industry. Before the internet, travelers relied on travel agents and airline staff to book flights and hotels. Information was fragmented and it was difficult to compare prices when shopping for tickets. Because prices were high, far fewer people traveled long distances, for example for the holidays. Pricelineʼs success lay in its ability to spot exploitable opportunities for itself and its customers. The company understood that when a plane departs with empty seats or a hotel has empty beds, there is a cost — the revenue that would have been earned if the seat or bed were filled. Pricelineʼs innovation was to bring airlines and hotels with unsold capacity together with travelers.
It works this way: customers specify the price they are willing to pay for a given trip or hotel, and then Priceline presents them with a list of options from airlines or hotels that are willing to accept that price. Typically, price declines as the trip date nears. Although some travelers like the security of booking their trips well in advance and are willing to pay for that, others are quite happy to wait until the last minute, and risk not getting their first choice flight or hotel in order to benefit from a lower price.........
QUESTION FOR THOUGHT
Explain how each of the 11 principles of economics is illustrated in this case.
Step by Step Answer:
Certainly Lets analyze how each of the 11 principles of economics is illustrated in the case of Priceline 1 People Face Tradeoffs Priceline identified a tradeoff between airlines and hotels with unsol...View the full answer
