Recently I surprised my wife Rebecca with tickets to see musician Ed Sheran perform at Arrowhead Stadium. Aside from us both being fans of his, another reason I purchased the tickets was the retail price of them had dropped significantly on Ticketmaster. After buying the bargain tickets, I then looked to apply the savings to reserve a hotel near the stadium. For those however, the prices were about 300% more than they would be on a normal night.
In both of these instances, the price for the good or service was based on something called “dynamic” or “surge” pricing. This method of pricing is common in industries like travel and entertainment uses factors such as supply and demand to adjust the price something in real-time. Often in these cases, the price being charged have little to do with the actual cost to produce the product or provide the service. Instead, it has everything to do with what the consumer is willing to pay.
In my particular case, because the concert tickets were not selling as quickly as the venue wanted them to, the retail price was dropped to increase demand. When it came to the price of the hotel, the increased demand for a room near the stadium was causing the price to be far higher than normal.
This practice really isn’t anything new. I’m sure you have all experienced this when buying gas. We are used to seeing the digital sign outside of the filling change in a split second based on the demand for gas at that time.
However, the limited ways in which retailers have had the ability to adjust prices based on demand is about to change drastically. The advancement of artificial Intelligence now makes it easy for businesses to know what a product is worth at any given second. In addition, the rise in the popularity of e-commerce makes it easy to adjust prices on the fly. In fact, you may not realize this, but what you pay for a product sold by companies like Amazon can change by the minute based on the market conditions that surround the item.
Brick and mortar retailers are not far behind in adopting this new form of pricing. Replacing traditional price tags with electronic shelf labels (ESL’s), retailers are able to change the price of an item in mere seconds at thousands of locations, or at just one.
For example, this past weekend my community up north was hit by a microburst leading to hundreds of down trees throughout the area. In the past, things like generators or chainsaws would be sold on a first come, first serve basis, at the normal price they are always sold at. With this new technology in place, those vital items might see an exponential increase in price temporarily in a few localized zip codes.
The ability to adjust prices quickly is so tempting that even the public utilities are getting into the game. Local provider Evergy recently announced they will be charging higher per-kilowatt rates for electricity during peak times of usage, such as days of extreme heat or in the evening when most people are home and consuming more power. https://fox4kc.com/news/evergy-rate-hike-could-cost-kc-area-schools-millions-of-dollars/
We used to call these kinds of price increases “price gauging” I literally remember hearing about people who were arrested after 9/11 and the pandemic for charging exorbitant prices for things like gas or toilet paper. Soon, I believe this will be so commonplace in our society we don’t even think twice about rapid fluctuation in the price of goods and services.
As a capitalist, there is a part of me that wants to defend this kind of pricing as simply the laws of supply and demand being efficiently upheld. However, there is also a part of me that believes such a technology paired with corporate collusion could ultimately harm both the consumer and small businesses.
The reality is there is no way to un-ring this bell of technology. AI is here to stay and corporations are going to utilize it to the best of their ability. My advice to you is simply to recognize that these methods are being used, and if something costs more than you think its worth, wait a little while. The price may go down if enough people agree with you.
(Past performance is no guarantee of future results. The advice is general in nature and not intended for specific situations)