My son is renting a car in December. He’ll drive it for two days in Orlando, then he’ll drive to South Florida for an eight-day stay. With the drop-off charge, the price is $900. But if he drops the car off in South Florida when he arrives and rents a new one from the same company, the total price is only $500. He values his time spent dropping off the car at less than $400, so he’ll do it.
The prices are similar at all the car rental companies. Why this deal? It costs the companies more-they have to process two reservations/returns, clean two cars. This can’t be cost-based price-discrimination, it must be demand-based; but it’s difficult to separate markets, as my son’s behavior shows. Except for an old example, creating the 386SX chip by lobotomizing the 386DX to reduce its capabilities and charging less for it than for the intact chip, are there any other equally clear examples?
and 
. You can also watch it on 
Working the in the car rental business for a summer in college… I can only say that branches never want to give a car away to another branch (within the same company). Because it is one less car to rent out. And branches compete against other branches for the highest rental rate and number of cars on the lot, number of cars rented for the weekend, etc.
I would guess the fee is a way to compensate the branch losing the car. Plus, as an intern, I would have to drive cars from one branch to another to meet certain needs, and that is a waste of time and money for everyone.
@4 renter
I think you misunderstood the story. In both cases, the car is dropped off in S FL. In the first scenario ($900), he drops off the car in S FL after 9 days. In the 2nd scenario ($500), he drops the original car off when arriving in S FL and rents a new, identical car for the remainder of the 9 days. The question is why is the second scenario cheaper?
Once I was at dinner in Cambridge and the “half portions” were about 40% of the cost of whole portions, even though two half portions were much more costly to the restaurant than one whole. After the table of economists speculated for a few minutes on the reason, Dick Zeckhauser asked the owner. He said that he did it to entertain his clientele – who loved analyzing data and finding anomolies.
I think this is all about unbalanced directional flows. In Canada, if you want to drive through the mountains between Calgary and Vancouver, the car rental rates are lower if you go from west to east rather than vice versa. Why? Most people want to go from east to west and the car rental companies end up with a surplus of cars in Vancouver, which they then have to move (often in truck carriers) to their “home”. The drop off charge is quite simple; they just double the daily or weekly rate if you insistent on going west!
Who cares? This is the kind of story I have to pretend to be interested in at cocktail parties.
It’s a pricing error. Wow.
Even stranger incident.
I recently booked my flights to Jackson Hole from Newark, NJ for $299, with a changeover in Salt Lake City.
Guess how much was the return ticket from Newark to Salt Lake City? $385.
Is there an actual “drop off charge?”
Or is it just that a one-way rental (pick up and drop off are different) costs $x per day, a round trip rental costs $y per day, $x is much larger than $y, and therefore 10x > 2x + 8y
When I sold door-to-door, some of the products were spray cans of things like deodorant, hairspray, bug spray, spot remover, etc, all with different prices like $1.29, $1.59 and $1.79. I made a collage of about 20 pictures of the cans on a sheet with “special offers” of “any two for $3.59 or any three for $5.39. The (mostly) ladies, who mostly want only one or two, fell for the bargain and always paid more.
If a lady wanted a toothbrush (they were 39 cents each then), I offered her a “special deal” of a pack of 24 for $9.39.
Even at my local Target, I find things like breakfast cereal where two smaller boxes of breakfast food cost less than the double sized one.
The lesson: those who can’t do arithmetic support those of us who can. You just can’t imagine how much folks are daily robbed in dealing with used cars, energy-efficient appliance, insurance and medical care!
A sadder lesson: in Amerika, almost all our national leaders are unschooled in advanced math, engineering, economics and science — almost all being history or English majors or lawyers — like Obama and the Supremes (some 8 of 535 in Congress are actually scientifically literate). When it comes to “global warming,” pollution, energy policy and other scientific and economic issues, we are forced to acknowledge that we are ruled by ignoramuses.
I bet I could sell any of them a package of 24 bogus ideas in 3 minutes, the time the Fuller Brush Man allots himself to close a sale.
In contrast, both Thatcher and Merkel are PhD scientists.