Concern seems to arise, though, when such pricing infiltrates new sectors where we’re accustomed to price stability. No one yet strolls into KFC wondering if they’ll get cheaper chicken before lunchtime. Milk is no more expensive in Tesco during the post‐work rush. There’s obvious value to consumers in such predictability. It’s a trust pact: you know what you’re getting for your pound, avoiding the need to search between stores, and businesses safeguard their reputation.
Now, though, the economics have changed. Algorithmic technology has reduced the cost of doing dynamic pricing — and businesses in entertainment, online marketplaces and even restaurants are experimenting. Time‐invariant prices have downsides, after all: lost revenue from long queues or product shortages during demand surges, the underutilisation of staff and capacity at off‐peak times, and customers flogging tickets at higher prices in black markets. Dynamic pricing mitigates this, meaning more profit opportunities — as long as consumers don’t rebel en masse.
This potential boost to profits is why zero‐sum critics assume dynamic pricing is anti‐consumer. The Nobel prize‐winning economist Richard Thaler noted in the 1980s that much of the public saw higher demand, as opposed to higher costs, as an illegitimate source of rising prices. Charging more, even when consumers willingly paid up, was “greedy profiteering”. The mainstream discourse seems predicated on new technologies squeezing more from us “for the same product”.
Yet this framing is simplistic and wrong. Dynamic pricing is a boon for consumers. On two‐sided platforms, where supply adjusts to fluctuating demand, flexible pricing delivers a better continuity of service. Where there’s a finite capacity of seats or tickets, flexible pricing ensures space goes to those who most value it, while opening access to off‐peak services through lower prices.
Uber’s surge pricing doesn’t just jack up riders’ costs when demand soars, for example, but offers drivers a carrot to keep on the road. Research keeps showing that it’s a win for users overall: wait times are steadier with dynamic‐priced Ubers than uniform‐priced taxis, while surges ensure more trips are completed than otherwise. Rationing by price means those riders with immediate, pressing needs can still access cars; those with other options, or willing to wait, can opt out.
Airlines vary prices based on flight dates, the number of remaining seats and sometimes even booking times. Who benefits? Overwhelmingly, the lower‐income leisure traveller. By enhancing airlines’ profitability, dynamic pricing models, combined with the unbundling of charges for seat selection and bags, drew new budget airlines into the sector, bringing more flights at lower prices.
It’s not difficult to conceive of similar benefits beyond dynamic pricing’s current applications. Imagine roads where tolls changed based on expected traffic flows, deterring jam‐packed commutes. Or energy price fluctuations eradicating the chance of power outages. Flexible pricing for cinemas, bowling alleys or supermarkets could smooth customer flow and grant off‐peak customers a sweeter deal. Some will pay more, yes, but they will still do so voluntarily.
Yet the knee‐jerk reaction of some “consumer champions” is to focus on perceived injustices. James Daley of Fairer Finance was unintentionally revealing when he told The Times: “I’m very much against [dynamic pricing] … The principle at the moment is ‘if you are willing to pay it’ it is a fair price, which of course is not fair.” Sorry? If consumer and seller voluntarily agree on a price, judging themselves enriched by the deal, what exactly is the rip‐off?
Representatives of Which? magazine worry that the lack of transparency about how dynamic pricing operates could leave some customers paying more than they need to, especially when they are unfamiliar with it. Yet, as Uber shows, earning customers’ repeat trade already provides businesses with strong incentives to provide such information, if consumers want it.
Ultimately, how far dynamic pricing permeates our lives will be thrashed out by these interactions between businesses’ needs and customers’ wants. What would be strange is to just assume there’s something inherently pernicious about it, and for the competition watchdog to impose restrictive rules that constrain it out of some arbitrary conception of fairness.
