Jonathan at My Money Blog wrote a very good post about shopping for hotel rooms a while ago:
Basically if you use an “opaque agency” like Priceline or Hotwire, you are able to save substantially on a hotel room. Although I’ve had a problem with Priceline, I still use them because on average I still get a better room for the money.
When hotels sell the same room for less on Priceline or Hotwire than they do on their own web site, they are practicing price discrimination. Customers who are willing to jump through a few hoops get a lower price. [Note 1]
The “catch” with Priceline and Hotwire is that you don’t know exactly what you will get before you commit to buy. In the case of Priceline, you also don’t know how low you should go. [Note 2]
Consumers counter it with web sites like BetterBidding and BiddingForTravel, where they post what prices were accepted or rejected and to which hotels they got assigned. When consumers share notes with each other, it’s no longer as opaque.
Businesses share notes about consumers all the time. They have access to a consumer’s credit reports, ChexSystems report, C.L.U.E. reports, MIB file, and God knows what other reports. It’s time for consumers to get together and share notes about businesses.
Right now the consumers are very disorganized. There are various review sites (Yelp for restaurants, for example), forums, blogs, Facebook, Twitter, but the “notes” are scattered all over the place. Google helps people find them, but relative to the number of consumers conducting transactions with businesses, the number of reviews is still very very small.
A smart government can play a good role here, as you see in how they help consumers save money on auto and homeowners insurance. If there is an official place where consumers can look up the score card of any business, they are so much better off than being in the dark.
If the government says every business must provide a score card and disclose their scores before entering into a contract with a consumer, good honest businesses will welcome that. This has worked very well on eBay.
If the consumers who fill out the score card with a review are entered into a lottery, there will be an incentive for consumers to do so. Some countries use this lottery mechanism to reduce tax evasion. In the end, everybody benefits. The consumers are more informed. Good businesses earn more business.
Whenever possible, I do my fair share of notes sharing. The reach is still very limited though. Sadly my post about BBG Communications has become a popular one because so many other consumers are also victimized by BBG.
1. There’s an econ paper about this whole opaque model. To be honest the propositions and proofs make my head spin. I will leave them to your enjoyment.
Shapiro, Dmitry A. and Shi, Xianwen, Market Segmentation: The Role of Opaque Travel Agencies (February 2008).
2. If you use Priceline, make sure you are familiar with this “free rebid zones” strategy:
Consumer’s Checkbook: Priceline Can Deliver Incredibly Low Rates on Hotel Rooms — If You Use It Wisely
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