The Patriot Post® · What Good Is Dynamic Pricing?

The next time you stop by your favorite fast-food joint for a burger combo meal, you may notice the price is different than what you paid last time. In fact, the price may change several times within the same day.

It’s called “surge pricing” or, more euphemistically, “dynamic pricing,” and many types of businesses have utilized it for years.

As Vox reports: “Between flights, hotels, concerts, car insurance, electricity, gas, Ubers, and online retailers like Amazon, many sellers adjust their prices using the trove of data at their fingertips to predict what people might pay at any given moment. Restaurants are just dipping their toes in an arena that Amazon and Uber seem to have perfected.”

It might feel new, but it isn’t.

“The mechanics of price fluctuations gained considerable attention in the 1950s after the economist William Vickrey determined that public transport systems could optimize congestion levels by increasing or decreasing prices,” writes Kimberlee Josephson at Discourse Magazine. “If subway fare increased at a certain time of day, people would be more likely to ride at an alternative time.”

Dynamic pricing is simply a way for businesses to stay competitive and, yes, make money. However, they still need to be aware of the effects it has on their customer base.

“Technology providers,” writes Heather Haddon at The Wall Street Journal, “are pitching services that enable restaurants to change prices weekly or monthly, increasing or slashing the cost of a taco or sandwich between a few quarters to several dollars, depending on demand and sales patterns. The small changes can add up for restaurants seeking more sales, though operators must weigh the potential gains with the risk of upsetting inflation-weary consumers.”

Essentially, when customers aren’t lining up at the counter for products or services, businesses cut prices. When there’s high demand, they charge more. It’s not really all that different from bars promoting “happy hour” specials on drinks. Dynamic pricing seems more appealing now that Americans are being hit hard by inflation.

Sure, the Biden administration claims inflation is under control, but ask anyone at your local grocery store or retailer, and they’ll tell you how hard it is to put food on the table and pay other bills. The restaurant industry is well aware of the rising costs of staying in business, especially with 25 states mandating minimum wage hikes in recent months.

Beginning April 1, “limited-service restaurant chains that have at least 60 restaurants nationally will be required to pay workers in California at least $20 an hour — 25% higher than the state’s general minimum wage of $16 an hour, though some cities and counties have higher minimums” Business Insider reports. “These wages will make the fast-food industry more attractive to workers — and will likely prompt other employers to bump up their pay to compete for labor.”

There’s no doubt this will result in higher menu prices.

Business Insider adds: “The Cheesecake Factory’s CFO Matt Clark told investors in November that the minimum wage could have a ‘ripple effect’ beyond just limited-service restaurants. Clark said that the Cheesecake Factory, which has 38 restaurants in California, could have to put wages up and reassess its menu prices in response.”

So it makes sense that many brick-and-mortar businesses, such as popular restaurants, are hopping on the bandwagon of dynamic pricing.

Yet many American consumers think dynamic pricing is nothing more than a gimmick used by companies to manipulate them at a time when they can least afford it. They’re frustrated by not knowing what anything costs these days, particularly products purchased less frequently.

As The New York Times reports: “Retailers and brands are bombarding shoppers with discounts, one-time offers and different gimmicks that overwhelm them with numbers while giving the impression that they are getting a good deal. And even when price comparison is easier and more prevalent, such as for airline tickets or hotel reservations, consumers get an incomplete picture of the actual cost because of add-on fees.”

At the same time, though, there are benefits to dynamic pricing. “Ultimately, how far dynamic pricing permeates our lives will be thrashed out by these interactions between businesses’ needs and customers’ wants,” writes Ryan Bourne at the CATO Institute. “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.”

Ultimately, it’s up to the customer to decide whether a product or service is worth the price. In this sense, dynamic pricing is nothing more than the give-and-take between buyers and sellers.

It’s called the free market, and it works best when government interferes least. Dynamic pricing has pros and cons for both businesses and consumers, but both sides need to be creative and flexible to survive Bidenflation and Bidenomics.