Priceline is a Web site that sells flights and hotel bookings based on the price

Question

Priceline is a Web site that sells flights and hotel bookings based on the price that a consumer states that he or she is willing to pay- So consumers who want to book a flight or a hotel room need to tell Priceline the price. Priceline know whether it is willing to accept that price. which of the following outcomes is likely using this form of pricing? A. Producer surplus will rise, since some price offers by consumers will be higher than the price that Priceline would have charged, causing consumer surplus to shrink. B. Consumer and producer surplus will rise, since consumers will only offer prices they are willing and able to pay, while firms will only accept offers that are beneficial to them. C. Consumer and producer surplus will fall, since without a set price for the good neither side will achieve their ideal price level. D. Producer surplus will fall, since some price offers by consumers will be below the price that Priceline would have charged, causing consumer surplus to rise. In 1999, Priceline attempted to replicate this pricing strategy with groceries and gasoline- Using this pricing strategy with these two goods soon proved unprofitable. What could explain this? The marginal cost of selling an airplane seat or a hotel room is relatively ___________ while the marginal cost of selling groceries and gasoline is relatively _____________.

Explanation / Answer

my answer is A

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