You’ve saved up to buy a plane ticket. You checked the airline website, so you know just how much it costs. Now your scheduled trip is just a week away, and you’re ready to purchase. You log on to the airline website, and . . . the tickets cost twice as much!
You just encountered dynamic pricing.
Sports teams, hotel chains, car rental companies, ride-sharing platforms, entertainment companies—basically anyone selling hot items—might use dynamic pricing. This allows them to adjust prices on the fly according to demand.
Supply and demand are key concepts in a free market. Businesses charge customers for products based on how much product exists (supply) and how much people want it (demand). The higher the demand and the lower the supply, the more expensive the product.
But when businesses set retail prices, they sometimes miss the mark. A concert venue might charge $75 for a ticket, but if thousands of people want those tickets, concert-goers might actually be willing to pay $249. That’s the ticket’s actual market value.
That gap between retail price and market value leaves room for brokers. Brokers—or “scalpers”—buy up high-demand items and resell them at a higher price. Technologically advanced brokers even use bots to snatch products the moment they hit digital shelves.
Look up Sony’s latest videogame console, the PlayStation 5. It retails for $499—if you can find one! Online, you’ll probably see prices as high as $700 or $1,000. Brokers know desperate gamers will pay big bucks for this hard-to-find system.
That’s no good for customers. It’s also not so good for the original retailers. None of that extra money goes back to them. The brokers get it all.
Retailers plan to change that with dynamic pricing. They can use algorithms to monitor the remaining number of products and the time left before those products must sell. Then online prices automatically adjust to match demand. So buyer beware: If you wait too long for that high-demand purchase, you might spend more than you planned.
Sometimes dynamic pricing gets out of hand. In July, the website Ticketmaster charged fans $5,000 for tickets to a Bruce Springsteen concert.
Buyers expect greedy third-party brokers to hike up prices. But when the retailers themselves do the same? It feels strangely unfair. Is “dynamic pricing” just another name for price-gouging?
Maybe. But also, shouldn’t businesses be able to sell their products for full market value?
It’s a tough knot to untangle. In the meantime, plan on purchasing those airplane tickets early.
Why? Modern technology allows businesses to determine market value like never before, but managing freedom and fairness can be complex.