Dynamic pricing

A changeable prices menu at a fast food stand on Emek Refaim Street in Jerusalem

Dynamic pricing, also referred to as surge pricing, demand pricing, or time-based pricing, and variable pricing, is a revenue management pricing strategy in which businesses set flexible prices for products or services based on current market demands. It usually entails raising prices during periods of peak demand and lowering prices during periods of low demand.[1]

As a pricing strategy, it encourages consumers to make purchases during periods of low demand (such as buying tickets well in advance of an event or buying meals outside of lunch and dinner rushes)[1] and disincentivizes them during periods of high demand (such as using less electricity during peak electricity hours).[2][3] In some sectors, economists have characterized dynamic pricing as having welfare improvements over uniform pricing and contributing to more optimal allocation of limited resources.[4] Its usage often stirs public controversy, as people frequently think of it as price gouging.[5]

Businesses are able to change prices based on algorithms that take into account competitor pricing, supply and demand, and other external factors in the market. Dynamic pricing is a common practice in several industries such as hospitality, tourism, entertainment, retail, electricity, and public transport. Each industry takes a slightly different approach to dynamic pricing based on its individual needs and the demand for the product.

  1. ^ a b "In Praise of Efficient Price Gouging". MIT Technology Review. 2014.
  2. ^ Joskow, Paul L.; Wolfram, Catherine D. (2012). "Dynamic Pricing of Electricity". American Economic Review. 102 (3): 381–385. doi:10.1257/aer.102.3.381. ISSN 0002-8282.
  3. ^ Ito, Koichiro; Ida, Takanori; Tanaka, Makoto (2018). "Moral Suasion and Economic Incentives: Field Experimental Evidence from Energy Demand". American Economic Journal: Economic Policy. 10 (1): 240–267. doi:10.1257/pol.20160093. ISSN 1945-7731.
  4. ^ Cite error: The named reference :10 was invoked but never defined (see the help page).
  5. ^ Fadulu, Lola (2024-02-27). "'Dynamic Pricing' for Burgers and Shakes? Wendy's Will Give It a Whirl". The New York Times. ISSN 0362-4331.