The Upside of Procrastination

The free newspaper on the London tube has this front-page advertisement: “From 10 a.m. tomorrow, £10 ($15) hotel rooms, on the web site
lastminute.com.”

For an economist this is a heartwarming advertisement. Clearly these are hotel rooms that would otherwise go unfilled.

While $15 is not much, I would imagine that it is a bit more than the marginal cost of a hotel room, since the only marginal costs of the rooms must be the electricity, water, laundry, and cleaning.

So long as these deals are rare — so that the customers don’t stop reserving early in the hope of obtaining a great last-minute deal — the hotels win, as do the customers.

London theaters have a similar deal, but tickets are only half-price on the day of the performance. Since the marginal cost of providing the seat is essentially zero, I wonder why those last-minute deals aren’t better. Perhaps there’s more of a chance that people will wait for the last minute, thus making this uneconomic for the theaters.