Question

You own a franchise of rental car agencies in Florida. You recently read a report indicating that about 80 percent of all tourists visit Florida during the winter months in any given year, and that 60 percent of all tourists traveling to Florida by air rent automobiles. Travelers not planning ahead often have great difficulty finding rental cars due to high demand. However, during nonwinter months tourism drops dramatically and travelers have no problem securing rental car reservations. Determine the optimal pricing strategy, and explain it is the best pricing strategy.

Answer 1

The best pricing strategy in this case is to charge higher prices in the winter months, and lower prices in the nonwinter months.

Step-by-step explanation:

Prices can be higher in the winter months because demand is high: 80% of all tourists visit in winter, and 60% of them rent automobiles, besides, many of them do not plan ahead and have issues finding a rental place. For these reasons, having the cars rented in winter should be easy even if prices a bit high.

The opposite ocurrs in the nonwinter months: tourism drops, and the few tourists have no issues finding a car. For this reason, the few of them should be lured by lower prices, otherwise, they might as well just go to the competitors.