Playing the Dynamic Pricing Game

Price discrimination may be defined as selling the same thing to different people for different prices. Price discrimination can take many forms, such as volume discounts, price premiums, or market segmentation. Suppliers regularly use many different forms of price discrimination, which people generally don’t object to.

Some suppliers use dynamic pricing, a sub-category of price discrimination, in which prices change over time with market conditions. Consumers have been used to the fact that prices for airline tickets and hotel rooms change constantly, and that different people end up paying different prices for a seat on the plane. While uncomfortable with the practice, consumers have generally come to accept this type of dynamic pricing (what choice do they have?).

Over the past few years, dynamic pricing has become more widely used by sellers as a means of supplementing shrinking margins in an increasingly competitive world. As more information becomes easily available in digital form, pricing algorithms used to support dynamic pricing systems have been able to draw upon more and more information to hone prices and increase profits.

A more controversial sub-category of dynamic pricing is personalized pricing, which uses personal information on each customer to tailor prices specifically to that customer.

This analysis examines the different types of price discrimination, how they increase profits, why they are becoming increasingly prevalent, and some emergent issues surrounding their use.

The Big Malaise

The malaise that pervades society today has become undeniable. We’re feeling a loss of connection and a loss of purpose in our lives. I believe this problem has been brewing for quite some time, and I believe it’s due to a confluence of factors that have been evolving over time, at least since the post-WWII era especially in the US, but also in the larger developed world. The factors involve changes in the environment in which we live, due to mutual interactions of social norms, technological development, government, and markets.

I have blogged in the past about how these four forces -- social norms, technological development, government, and markets -- interact and drive social evolution. I have also contemplated writing a book on the subject. However, the issue of the social unrest we’re experiencing comes up so often that I decided to briefly summarize what I believe are the major drivers of the problem and to briefly suggest how we approach a solution. 

Very briefly, the big factors that have been evolving over time and creating social problems include the following.

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Strategic Maneuvering in Dynamic Markets
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