The Fruits of Civilization (31-2-6) Dynamic Pricing

Dynamic Pricing

The hoariest form of dynamic pricing was practiced in ancient bazaars, where merchants would size up their customers before the haggling began. Computerization has made dynamic pricing the norm.

From the early 1980s, airlines took to varying the price of their tickets to gouge their frequent business customers, as well as to fight competition from discounting upstarts. The practice soon spread to hotels, car-rental firms, and railways.

Dynamic pricing became all the rage when e-commerce became common. Competitors can be constantly monitored, and their prices matched. The US retailer Kohl’s holds sales that last for hours rather than days, pinpointing the times when discounts are most needed. Amazon updates its price listings every 10 minutes. Cintra, a Spanish infrastructure firm with toll roads in Texas, changes prices every 5 minutes so as to keep traffic moving. Tickets for sporting events, concerts, and even the zoo are dynamically priced, to maximize profits for hot tickets and to stimulate demand for unwanted ones.

Dynamic pricing both smooths demand and makes it easier to squeeze more from those with more to give. Travel web sites have experimented with steering Apple computer users, who are assumed to be better-off than plebian Windows users, to more expensive options. Airlines regularly charge their frequent customers more than those seemingly out on a lark, on the assumption that regulars are more likely to be on a work trip for which their employer pays.

Uber matches folks wanting a ride with contractor drivers who act as taxis. The company encountered a backlash when it jacked its prices 8-fold during 2013 storms in New York.

Such “surge” pricing makes perfect economic sense: drivers are more likely to go out into hostile conditions if they are paid more, and many needing to get somewhere would prefer a high-priced ride to no ride at all; but economic sensibility cuts little ice when it offends people’s sense of equity.

Psychological resistance can be fierce when companies use collated data against their loyal customers. In 2000, Amazon quickly scotched a scheme to charge more for video disks based upon personal profiles.