explain how each of the twelve principles of economics is illustrated in this case study.

How priceline.com revolutionalized the travel industry?

Investors who held onto their shares of Booking Holdings over the past several years were happy campers in spring 2018. That is when the share price of Booking Holdings, the parent company of Priceline.com, the online provider of travel-related bookings, hit an all-time high of over $2,000a 30,000% plus increase over its lowest point of $6.60 per share in October 2002.

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, the company lost 95% of its value, going from a valuation of $9 billion to a paltry $425 million. What went so right, then so terribly wrong, and then so incredibly right again?

When the company was formed in 1998, investors were immediately impressed by how it revolutionised the travel industry. Its 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 costthe revenue that would have been earned if the seat or bed were filled. Priceline.coms innovation was to bring airlines and hotels with unsold capacity together with travellers.

It worked this way: customers specify the price they are willing to pay for a given flight or hotel, and then, after booking, Priceline presents them with a list of airlines or hotels willing to accept that price. Typically, the price declines as the trip date is near. Although some travellers like the security of booking their trips well in advance and are willing to pay extra for that assurance, others are quite happy to wait until the last minute and risk not getting their first choice of flight or hotel to benefit from a lower price.

Priceline, then, found a way to make everyone better off, including itself, since it charged a small fee for each booking is facilitated.

Yet, in 2002 the company was at risk of going under. After the terrorist attacks of September 11, 2001, many Americans simply stopped flying. As the economy went into a deep slump, aeroplanes sat empty on the tarmac and the airlines lost billions of dollars. Several major airlines spiralled toward bankruptcy, and Priceline.com was losing several million dollars a year.

In order to avert a meltdown of the airline industry, Congress passed a $15 billion aid package that was critical in stabilising the industry.

That was the seed of the companys turnaround. Quick on its feet when it saw its market challenged by newcomers Expedia and Orbitz, it responded aggressively by moving more of its business toward hotel bookings and into Europe, where the online travel industry was still quite small. Its network was particularly valuable in the European hotel market, composed of many more small hotels, compared to the U.S. market, which is dominated by nationwide chains. The efforts paid off, and by 2003 Priceline.com was turning a profit. From 2005 to 2018, Priceline.com expanded by acquiring the travel websites Booking.com, Kayak.com, Agoda.com, Rentalcars.com, and OpenTable.com, transforming itself into Booking Holdings, with revenues of $12.7 billion in 2017, and a revenue growth rate averaging 15% for the past 3 years.