Priceline.com, a travel site, offers everything from hotel rooms to car rentals. While many have already heard of the company (mainly through the tongue-in-cheek William Shatner ads airing on television), most do not realize the specifics of proper bidding strategy—as discussed in lecture. This, along with the details of BiddingForTravel.com, a bidding advising site which facilitates information cascading, are discussed in a recent New York Times article.

Based on user descriptions of its bidding process, Priceline appears to follow both a first choice auction (since bidders pay their bid price if they win) and a generalized auction (owing to several available ‘slots,’ e.g. rooms or flights), although it is impossible to be completely sure. What I can be sure of regarding the whole process, according to the New York Times, is the following:

First, potential vacationers submit their desired price, along with a preferred time of travel. Next, Priceline searches with its partners, affiliated hotels and airlines, if they choose to accept the offer. If Priceline is able to find a match, the deal is complete. If not, the whole process can be repeated (obviously with a different bid or different departure dates).

Although the format of the auction is not perfectly clear—in reality, it might actually be a trading network scheme—we can be assured that all bidders are attempting to maximize their payoffs regardless of what any other Priceline user is doing at any given time. Simply put, no one would like to overpay for the good. Alternative means of purchasing the good (e.g. purchasing directly through the airline or resort) are inevitably responsible for determining each bidder’s value. This type of background research inevitably leads to information cascades.

BiddingForTravel.com lists winning bids for Priceline auctions for all potential vacationers to see. It keeps consumers informed on proper bidding techniques and helps them understand what they should be paying for a weekend in the city of their choice. More specifically, it helps people decide between ‘accepting’ or ‘rejecting’ two alternatives. For instance, should I change my bid of $1000 for a holiday in Mexico if past winning bids were approximately $1500? Most likely yes, if several bidders have paid $1500 in the past and the signal strength is high. Assuming that BiddingForTravel.com gets enough publicity, bidders should be using this information to improve their expected payoffs by bidding similarly.