Why Charge More for a Pre-Paid Rental Car?
A reader named Gerald Andriole writes in with a small but interesting puzzle:
I’m a student at Georgetown working on a project about the rental-car industry and came across the attached pricing structure on Budget’s website. I don’t understand why they would charge a prospective renter more to pay right now than if payment was delayed until picking up the car. This seems to go against every bit of the time value of money theories drilled into me. One possibility I can think of is Budget knows corporate renters have to pay with company funds when making the arrangement, but I’m not too comfortable with that explanation.
Here’s what the offer looked like, with three of the four options cheaper at the counter than in advance:
I cannot think of a satisfactory answer either, other than perhaps that pre-paying guarantees you a car on site, and so if the company cannot fulfill your reservation (as we all know sometimes happens), it cannot be held liable. But that’s not a very satisfactory answer either.
I suggested that Gerald contact Budget directly to ask about this pricing riddle. The reply wasn’t very useful:
From: Budget Customer Service
Date: Tue, Nov 30, 2010 at 4:34 PM
Subject: Re: Car Reservation Questions (KMM3597611V28190L0KM)
Dear Mr. Andriole,
Thank you for contacting the E-mail Customer Service team, I apologize
for the delay in responding to your email inquiry.
I am sorry for any concerns in this matter. This is not an error on the
web site’s part as the “Offer Codes” section states “you may save”. To
some people it is an advantage to prepay for their rental in advance and
to some they prefer to pay at the location.
If we can be of further assistance, please let us know.
Budget Customer Service
Can anyone explain this puzzle?