Marginal Cost/Marginal Revenue - Priceline.com

Review the basic Priceline.com service information under the "How It Works" tab.

• How can Priceline.com offer prices on hotels and airline tickets that are 40% to 50% below retail prices?
• Under what condition would a proposed or asking price for airline tickets be refused by participating airlines? (Hint: P = MC)
• Visit Ubid.com. Explain why having "No Reserve Price" may help to increase consumer surplus in the market.
• Explain how new services like mySimon.com bring about more competitive markets.
  

Electronic Markets

Visit the Iowa Electronic Markets homepage.
a. Explain how the political futures market at this site operates.
b. Will the demand curve for these future contracts be downward sloping? Explain.
c. What factors will affect the demand and supply of these future contracts? Be specific. Explain how each of these factors will shift demand and/or supply.

Online Auction

a. Record the current high bids for 3 of the new computer hardware items that are scheduled for sale within the next 24 hours at the eBay web site.
b. Look up the current best retail prices for these items using the Price Watch page.
c. Do the auction prices appear to be converging to the low retail prices? Are they higher or lower?
d. If these prices differ substantially, why might this be the case?
e. As people become more aware of the resources offered on the internet, what might you expect to see happen to price dispersion for particular commodities?