ECON 208 Lecture Notes - Lecture 7: Congestion Pricing, Arbitrage, Adwords

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ECON 208 Full Course Notes
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ECON 208 Full Course Notes
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Document Summary

One optimal use for it pricing software systems is when there is an externality problem. A good example is road congestion pricing, where a city prices roads higher during peak hours to deter drivers from driving then. This is also the case for water parks, theme parks and so on. These are examples of goods that have a very high xed capacity and highly variable demand, leading to congestion at certain times that they need to manage. The most expensive thing in a restaurant is an empty table. Most rms want to operate at something close to full capacity whenever they can. By booking a hotel room, i am directly preventing another customer from taking that hotel room. This trade-o between pricing a room low and selling it now against waiting and potentially selling a room at the last minute for a higher price, has given rise to the practice of revenue management.

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