Dynamic pricing is a form of price discrimination, commonly used by airlines and hotels, in which a firm changes its prices in response to shifts in demand. In recent years, it has been promoted in the nonprofit sector as a method to help arts groups fill seats, maximize revenues, and (drum roll, please) make programs more accessible. Evidently, it is already being used by many arts groups across the US. While I hate to be the one to rain on the dynamic pricing parade, I have concerns about this trend.
Let’s call a spade a spade. Dynamic pricing is a method for maximizing profits. The fact that an airline is willing to sell me a cheap ticket in January to some cold and cloudy city doesn’t constitute altruism on its part. Likewise, selling a cheap ticket for a seat in the nosebleeds, or to a show that isn’t moving, is not charity on the part of a nonprofit arts group when that seat would have gone empty at a higher price. I find it particularly odd that these lower priced tickets are said to be aimed at improving accessibility when organizations reserve the right to increase prices (higher than as previously advertised, even) if a show takes off at the box office.
Suddenly increasing ticket prices in response to high demand, and selling “premium” seats priced as high as people are willing to pay, strike me as questionable practices in a nonprofit organization. A soup kitchen could probably earn greater revenues (which it could plow back into making more soup) if it allowed those who could pay more to buy heartier soup or raised the price of soup on really cold days. However, doing so would not be considered ethical because it would entail discriminating against those least able to pay and taking advantage of people when they need soup kitchens most.
One of the differences between a commercial firm and a nonprofit should be that the former will seek to maximize profits and the other will not do so, even if it could. A nonprofit is expected to leave money on the table. Of course, as Saint Paul Chamber Orchestra has begun to demonstrate, one need not leave it there forever; if well-timed and well-executed, it may be possible to lower ticket prices across the board and then solicit a voluntary donation of that “consumer surplus”.
But above all, I worry about the long-term effects of dynamic pricing in the arts. Such models work best in industries in which consumers are unlikely to change their habits. Despite the ridiculously high price, I’m still flying home for the holidays. Arts patrons, on the other hand, have an increasing number of options when it comes to allocating their leisure time and dollars. Can the arts really afford to risk engendering the feelings of mistrust and frustration that airlines seem to breed by engaging in similar pricing shenanigans?
Wolf in Sheep’s Clothing image licensed from Shutterstock.com