Name Your Own Price

The "Name-Your-Own-Price" (NYOP) is a system under which buyers make a suggestion for a product’s price (unlike the traditional way where sellers quote a certain price) and the transaction occurs only if a seller accepts this quoted price. What happens is that the seller waits for a potential buyer's offer and can then either accept or reject that 'named price' that the user had offered. As the Internet is continuously being developed and the online marketplaces are becoming increasingly more popular, consumers have more choices in terms of product pricing. Popularised by the reverse auction pioneer, Priceline.com, such pricing strategy asks consumers to 'name their own price' for various products and services like air tickets, hotels, rental cars, ... etc. The first bid a consumer places and the subsequent bid increments express the consumer's willingness or unwillingness to haggle. "The economic argument is that the number of bids a consumer submits to win a product in a NYOP auction is determined by the bidder’s intention to trade off higher expected savings from haggling against the associated frictional costs". NYOP retailers do not post a price for their products, and the final price of the transaction is only determined via a "reverse auction process", and these are key features that distinguish hotels and travel intermediaries from NYOP retailers.

Originally, Name-your-own-price sales are considered "opaque" by marketers because buyers "don't know the name of the supplier (airline, hotel or car rental company) or the schedule (with air tickets) until after" they make a nonrefundable purchase. Suppliers benefit because they can sell to the most price-conscious buyers/travelers without publicly disclosing those low rates.

Founded in 1998, Priceline is an "online travel company that offers its customers hotel room reservations at over 295,000 hotels worldwide through the Booking.com, priceline.com and Agoda brands." Tom White, an analyst at Macquire Capital USA Inc., who rates Priceline an equivalent of a buy said that “Priceline is the best executor in the online travel space,” on International Bookings. By 2005, Priceline began to de-emphasize this system, and added published price options on their websites. This trend is in accordance with a recent academic study showing that posted price can guarantee higher profitability to service providers than the name-your-own-price mechanism.

Priceline.com has two different methods of price discrimination according to the product categories offered. For example, for multi-attributable products that are fairly close substitutes, such as hotel accommodation or air travel, Priceline uses a certain price discrimination method where potential buyers place offers on such products, uncertain about some of the attributes of the product. For instance, customers placing offers for air travel are uncertain about the travel schedule in details and do not know which carriers will place their orders, thus allowing Priceline to screen consumers according to their type, and this in turn allows airlines to serve customers that they were not able to distinguish from less price-sensitive customers before. Priceline uses a different price discrimination method for selling undifferentiated goods. Using this method, Priceline uses haggling effort—representing consumer effort and time loss from the online haggling process— as a way of discriminating between different customers. For example, a consumer placing an offer for calling capacity can start with a low offer and then— after waiting for a 60-second time period and then getting rejected— the offer is incremented. Before barring customers from submitting additional offers for 24 hours, Priceline allows customers to submit three offers consecutively for the same phone number and the same capacity. Priceline claims that with their breakthrough Name Your Own Price feature, they quickly became the "traveler's cool best friend."

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Wikipedia