Dynamic pricing

[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).

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.

In case of high competition, yet a stable market, and a long-term view, it was predicted that firms will tend to cooperate on a price basis rather than undercut each other.

The dynamic aspect of this pricing method is that elasticities change with respect to the product, category, time, location, and retailers.

Such variations include both regular oscillations due to the demand patterns of users; supply issues (such as availability of intermittent natural resources like water flow or wind); and exceptional price peaks.

Hotels and other players in the hospitality industry use dynamic pricing to adjust the cost of rooms and packages based on the supply and demand needs at a particular moment.

This form of price discrimination is used to try to maximize revenue based on the willingness to pay of different market segments.

[17] A 2022 study in Econometrica estimated that dynamic pricing was beneficial for "early-arriving, leisure consumers at the expense of late-arriving, business travelers.

For example, the San Francisco Bay Bridge charges a higher toll during rush hour and on the weekend, when drivers are more likely to be traveling.

The tolls on the Custis Memorial Parkway vary automatically according to the actual number of cars on the roadway, and at times of severe congestion can reach almost $50.

Dynamic pricing is particularly important in baseball because MLB teams play around twice as many games as some other sports and in much larger venues.

[22] Tickets for a game during inclement weather will sell better at a lower price; conversely, when a team is on a winning streak, fans will be willing to pay more.

Dynamic pricing was first introduced to sports by a start-up software company from Austin, Texas, Qcue and Major League Baseball club San Francisco Giants.

The San Francisco Giants implemented a pilot of 2,000 seats in the View Reserved and Bleachers and moved on to dynamically pricing the entire venue for the 2010 season.

[25][26] Supermarkets often use dynamic pricing strategies to manage perishable inventory, such as fresh produce and meat products, that have a limited shelf life.

By adjusting prices based on factors like expiration dates and current inventory levels, retailers can minimize waste and maximize revenue.

Additionally, the widespread adoption of electronic shelf labels in grocery stores has made it easier to implement dynamic pricing strategies in real-time, enabling retailers to respond quickly to changing market conditions and consumer preferences.

[40] Even with firms’ disclaimers stating private information will only be used strictly for data collection and promising no third-party distribution will occur, few cases of misconducting companies can disrupt consumers’ perceptions.

[41] Some consumers were simply skeptical on general information collection outright due to the potentiality of “data leakages and misuses”, possibly impacting suppliers’ long-term profitability stimulated by reduced customer loyalty.

[50] Drivers have been known to hold off on accepting rides in an area until surge pricing forces fares up to a level satisfactory to them.

In response, Wendy's stated that the intended implementation was limited to reducing prices during low traffic periods.