{"id":1660,"date":"2014-10-27T08:24:39","date_gmt":"2014-10-27T15:24:39","guid":{"rendered":"http:\/\/www.artsjournal.com\/worth\/?p=1660"},"modified":"2014-10-29T18:41:03","modified_gmt":"2014-10-30T01:41:03","slug":"what-is-dynamic-pricing-a-clarification","status":"publish","type":"post","link":"https:\/\/www.artsjournal.com\/worth\/2014\/10\/what-is-dynamic-pricing-a-clarification\/","title":{"rendered":"What is dynamic pricing? A clarification (updated)"},"content":{"rendered":"

\"first-degree\"<\/a>‘Dynamic pricing on websites: illegal or unfair?’, asks\u00a0\u00c9lo\u00efse Gratton<\/a> on her blog. But the post confuses various pricing strategies, not all of which are ‘dynamic pricing’.<\/p>\n

Dynamic pricing, also known as \u201cadaptive pricing\u201d, \u201cdynamic pricing\u201d or \u201cdiscriminatory pricing\u201d \u00a0or\u00a0first-degree price discrimination, is defined as a practice where organizations attempt to perfectly exploit the differences in price sensitivity between consumers. Dynamic pricing is an old practice that has been around forever: for example, if you go to a flea market, the price for an item will change for each potential customer, depending on the negotiations of the parties and depending on what each customer is willing to pay at a specific time, in light of given circumstances (volume purchased, etc).<\/p>\n

This practice\u00a0is recently making a come back. With consumer profiling, consumers can be sorted as individuals or groups by retailers and this makes it possible for the retailers to create a pricing scheme tailored to individual customers based on their purchase or online histories.<\/p><\/blockquote>\n

No. Let’s clear up some terms.<\/p>\n

Price discrimination<\/em> is the practice of charging different prices to different consumers. First-degree price discrimination<\/em> charges a different price to each individual consumer according to characteristics of that particular consumer (are they a tough negotiator? what have they looked at, or bought, online recently?). Second-degree price discrimination<\/em> (for which I prefer the term<\/a> indirect price discrimination<\/em>) offers all consumers the same ‘menu’ of options – different prices according to quality, quantity, special extras, for example – knowing that consumers will essentially sort themselves into paying different prices according to their preferences over the menu options (just as restaurants exploit differences in customer preferences by having quite different rates of mark-up on entrees, wine and dessert). Third-degree price discrimination<\/em> (for which I prefer the term direct price discrimination<\/em>) segments consumers into identifiable groups (for example, students and non-students) and sets different prices for the different groups.<\/p>\n

None of these three methods of price discrimination necessarily involves the practice of adjusting prices according to revealed strength of demand at current prices, which is what is meant by dynamic pricing<\/em>.<\/p>\n

For instance, it was reported<\/a> a few years ago that\u00a0Coca-Cola had tested dynamic pricing in vending machines where prices would fluctuate based on the surrounding temperature since soft drink may be worth more when it is hotter outside. Amazon was also\u00a0suspected<\/a> of using such practices in 2000, using cookies to identify the visiting consumers. Staples Inc.was found using dynamic pricing<\/a> based on users\u2019 locations and Orbitz has also been accused of price discrimination<\/a> in the past, charging Mac users as much as 30% more than PC users for certain products. In the offline space, retailers could profile a customer in real-time (based on an RFID read of objects carried and by cross-referencing to past buying patterns) and they may offer differential service based on the \u201cvalue\u201d of the customer to the retailer.<\/p><\/blockquote>\n

The Coca-Cola example could fairly be described as dynamic pricing (though it works on anticipated shifts in demand rather than revealed shifts in demand). The Amazon case sounds like first-degree price discrimination, and the Staples and Orbitz examples are third-degree price discrimination, but none of them are dynamic pricing.<\/p>\n

If we don’t sort out the fundamental differences between these very different types of price discrimination and dynamic pricing, we cannot begin to answer questions about illegality or immorality.<\/p>\n

UPDATE: Another article<\/a>, this time from Marketing<\/em>, that completely confuses dynamic pricing with price discrimination – they are not the same at all, involving completely different issues.<\/p>\n","protected":false},"excerpt":{"rendered":"

‘Dynamic pricing on websites: illegal or unfair?’, asks\u00a0\u00c9lo\u00efse Gratton on her blog. But the post confuses various pricing strategies, not all of which are ‘dynamic pricing’. Dynamic pricing, also known as \u201cadaptive pricing\u201d, \u201cdynamic pricing\u201d or \u201cdiscriminatory pricing\u201d \u00a0or\u00a0first-degree price discrimination, is defined as a practice where organizations attempt to perfectly exploit the differences in […]<\/p>\n","protected":false},"author":3,"featured_media":1663,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[26],"tags":[],"class_list":{"0":"post-1660","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-issues","8":"entry"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"https:\/\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/10\/flea-market.jpg","jetpack_shortlink":"https:\/\/wp.me\/p3dIW5-qM","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":2972,"url":"https:\/\/www.artsjournal.com\/worth\/2024\/02\/today-in-dynamic-pricing\/","url_meta":{"origin":1660,"position":0},"title":"Today in dynamic pricing","author":"Michael Rushton","date":"February 27, 2024","format":false,"excerpt":"I have a chapter on dynamic pricing in my old book. In a nutshell: dynamic pricing is where the seller adjusts the current price upwards or downwards based upon the most recent information on market conditions. This is not the same as a cinema having discount Tuesdays, since it will\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2024\/02\/image-1.png?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]},{"id":1976,"url":"https:\/\/www.artsjournal.com\/worth\/2016\/02\/dynamic-pricing-and-price-discrimination-are-not-the-same-thing\/","url_meta":{"origin":1660,"position":1},"title":"Dynamic pricing and price discrimination are not the same thing","author":"Michael Rushton","date":"February 6, 2016","format":false,"excerpt":"But a recent article in The Economist (!) confuses the matter. Dynamic pricing occurs when sellers adjust prices on a frequent basis to account for varying shifts in demand, or limitations in supply. Uber raises fares when demand spikes upward and drivers are scarce; sports teams cut prices for tickets\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"let's get this straight","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2016\/02\/apples-and-oranges.jpeg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":1365,"url":"https:\/\/www.artsjournal.com\/worth\/2014\/06\/dynamic-pricing-at-the-zoo\/","url_meta":{"origin":1660,"position":2},"title":"Dynamic pricing at the zoo","author":"Michael Rushton","date":"June 20, 2014","format":false,"excerpt":"The Indianapolis Zoo has adopted dynamic pricing. The policy is combined with increased differentiation in prices between low-demand weekdays and high-demand weekends, and a general increase in prices arising from the increased demand that will flow from the new orangutang exhibit. The Indiana Business Journal reports: The zoo expects the\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"come see me on a cloudy Tuesday","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/06\/Orangutang.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/06\/Orangutang.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/06\/Orangutang.jpg?resize=525%2C300&ssl=1 1.5x"},"classes":[]},{"id":1621,"url":"https:\/\/www.artsjournal.com\/worth\/2014\/10\/whats-new-in-dynamic-pricing\/","url_meta":{"origin":1660,"position":3},"title":"What’s new in dynamic pricing?","author":"Michael Rushton","date":"October 16, 2014","format":false,"excerpt":"There's a good, well-informed post by Tim Baker on 'The State of Dynamic Pricing'. So, what do we know so far? First, on the term. Dynamic Pricing is not about offering different prices to different market segments, nor is it about scaling the house or other quality differentials, nor about\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"they will taste just fine!","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/10\/bananas.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/10\/bananas.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/10\/bananas.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/10\/bananas.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/10\/bananas.jpg?resize=1050%2C600&ssl=1 3x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/10\/bananas.jpg?resize=1400%2C800&ssl=1 4x"},"classes":[]},{"id":1106,"url":"https:\/\/www.artsjournal.com\/worth\/2014\/03\/when-dynamic-pricing-makes-sense\/","url_meta":{"origin":1660,"position":4},"title":"When dynamic pricing makes sense","author":"Michael Rushton","date":"March 11, 2014","format":false,"excerpt":"\"Let's move before the raise the parking rate.\" Palmerston North, New Zealand, has the latest in dynamic pricing for parking. From Offsetting Behavior (via Marginal Revolution): The 33-space carpark in the city\u2019s Church Street has been kitted out with solar-powered sensors by local parking technology firm Frogparking that can tell\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"use this fern for $2 an hour","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/03\/kiwi.jpg?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]},{"id":1018,"url":"https:\/\/www.artsjournal.com\/worth\/2014\/01\/pricing-at-the-met\/","url_meta":{"origin":1660,"position":5},"title":"Pricing at the Met","author":"Michael Rushton","date":"January 29, 2014","format":false,"excerpt":"Today the Wall Street Journal and the New York Times report on statements from the Metropolitan Opera regarding recent changes in prices and box office revenues. The WSJ reports, under the headline \"Met Opera Suffers Budget Shortfall From Pricing Backlash\": \u00a0 \u00a0 \u00a0 The Metropolitan Opera's $311 million budget fell\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"not just a theory, it's the law","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/01\/demand.png?resize=350%2C200&ssl=1","width":350,"height":200},"classes":[]}],"_links":{"self":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts\/1660","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/comments?post=1660"}],"version-history":[{"count":5,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts\/1660\/revisions"}],"predecessor-version":[{"id":1666,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts\/1660\/revisions\/1666"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/media\/1663"}],"wp:attachment":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/media?parent=1660"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/categories?post=1660"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/tags?post=1660"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}