Pricing in theoy and practice?

Question

Hello! To what extent does marginalist pricing represent a close approximation to actual pricing decisions? Can someone give me a few hints please?

Thanks

Answer 1

When I rented a car for 20 hours the other day, I was quoted by phone £40. When I told them I was shopping around, they said they'd match any other local quote. I told them someone local had offered £35 and they immeditaely cut the price to £30. I did a deal on the spot.

This is towards marginal cost pricing. They need, presumably, to get close to £40 per day on 1-day hires in general to make their profit-margin targets, but better to get £30 than nothing if the car would otherwise sit idel on the forecourt.

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Late-booking airline ticket sales on the internet are a pretty pure example. As the time of the flight approaches, there is downward pressure on the price because of the need to sell the remaining tickets before the gate closes. If you (in the UK, anyway) are willing to fly to any sunshine-holiday destination (Alicante, Almeira, Faro, Corfu, etc) and at only a day or so's notice you can get some fantastic bargains at all non-peak times in the season becasue the marginal cost of filling the seats is so much lower than the average cost. On the other hand, if the seats left on a particular flight are few and the sellers get wind that there might be more customers competing for them than spaces onboard, the price will actually go up -- on, say, the seventh or sixth or fifth day before the flight.