{"id":1976,"date":"2016-02-06T07:13:18","date_gmt":"2016-02-06T15:13:18","guid":{"rendered":"http:\/\/www.artsjournal.com\/worth\/?p=1976"},"modified":"2016-02-06T07:13:18","modified_gmt":"2016-02-06T15:13:18","slug":"dynamic-pricing-and-price-discrimination-are-not-the-same-thing","status":"publish","type":"post","link":"https:\/\/www.artsjournal.com\/worth\/2016\/02\/dynamic-pricing-and-price-discrimination-are-not-the-same-thing\/","title":{"rendered":"Dynamic pricing and price discrimination are not the same thing"},"content":{"rendered":"

\"let's<\/a>But a recent article in The Economist<\/em> (!) confuses the matter.<\/p>\n

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 for the final games in a season when it becomes clear the team will not qualify for the playoffs; airlines raise or lower prices to maximize revenue from scheduled flights; theatres lower prices for shows, or specific dates for shows, where demand is proving to be weak at the starting prices.<\/p>\n

Price discrimination occurs where sellers attempt to charge higher prices to those with less sensitivity to higher prices and higher willingness to pay, and lower prices to those who are more price sensitive, and will not buy at higher prices. This can be achieved by setting different prices for different identifiable groups (student discounts; lower membership fees for people who live at least 100 miles away from the museum) or by offering a menu of different options on quality and quantity to all, knowing that those with a high willingness to pay will choose the more expensive option (scaling the house; subscriptions vs single tickets; two-part pricing; lower prices on weekdays than weekends).<\/p>\n

Any arts organization can use both – your theatre can use dynamic pricing and<\/em> have student discounts – but they are different concepts.<\/p>\n

At The Economist<\/em>, columnist Schumpeter in an article on dynamic pricing<\/a>\u00a0begins:<\/p>\n

Businesses have always offered different prices to different groups of customers. They offer \u201cmatin\u00e9e specials\u201d for afternoon cinema-goers or \u201chappy hours\u201d for early-evening drinkers. They offer steep discounts to students or pensioners. Some put the same product into more than one type of packaging, each marketed to a different income group.<\/p>\n

Dynamic pricing takes all this to a new level\u2014changing prices by the minute and sometimes tailoring them to whatever is known about the income, location and spending history of individual buyers. The practice goes back to the early 1980s when American Airlines began to vary the price of tickets to fight competition from discounters such as People\u2019s Express. It spread to other airlines, and thence to hotels, railways and car-rental firms. But it only became the rage with the arrival of e-commerce.<\/p><\/blockquote>\n

But dynamic pricing is not<\/em> price discrimination ‘to a new level’ – \u00a0it is about varying prices due to the supply-and-demand conditions of the moment, not about discriminating between buyers. An airline can use dynamic pricing without knowing anything about individual customers. They can also price discriminate (business class vs economy vs economy ‘plus’; points for frequent flyers) but that is a different technique. Again from the article:<\/p>\n

The dynamic-pricing revolution provides plenty of benefits for businesses. Besides helping them smooth demand (which can spare them the cost of maintaining extra capacity for peak times), it makes it easier for them to squeeze more out of richer customers. Travel websites have experimented with steering users of Apple computers\u2014assumed to be better-off than Windows PC users\u2014towards more expensive options.<\/p><\/blockquote>\n

But you can smooth demand without looking to get higher fees out of Apple users, and get higher fees out of Apple users without using demand-smoothing dynamic pricing. They are different kinds<\/em> of strategy.<\/p>\n

Schumpeter (the columnist, not the namesake<\/a>) goes on to write about psychological resistance:<\/p>\n

… companies\u2019 reputations can suffer if they offend customers\u2019 sense of fairness. Uber encountered a backlash when it increased its prices eightfold during storms in New York in 2013. Such \u201csurge\u201d pricing makes perfect economic sense: drivers are more likely to go out in hostile conditions if they get paid more; and many customers would prefer a high-priced ride to no ride at all. But these arguments cut little ice when prices run counter to people\u2019s sense of equity. So, in this week\u2019s snowstorms in New York, Uber capped its surge prices for its regular taxis at just 3.5 times the normal fare.<\/p>\n

Psychological resistance can be fierce when companies use data collected from their customers to charge them more. That is why, in 2000, Amazon quickly dropped a scheme to charge some customers more for DVDs based on their personal profiles, and why it has trodden carefully since.<\/p><\/blockquote>\n

Different things, and individuals will differ according to their aversion to surge pricing, and to first-degree (i.e. at the level of the individual) price discrimination.<\/p>\n

A plug: in my book<\/a> on pricing for arts organizations I attempt to go at these issues systematically, rather than just catalogue a list of pricing techniques that are somehow new because of the internet. Best think clearly on pricing.<\/p>\n","protected":false},"excerpt":{"rendered":"

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 for the final games in […]<\/p>\n","protected":false},"author":3,"featured_media":1979,"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-1976","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\/2016\/02\/apples-and-oranges.jpeg","jetpack_shortlink":"https:\/\/wp.me\/p3dIW5-vS","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":1660,"url":"https:\/\/www.artsjournal.com\/worth\/2014\/10\/what-is-dynamic-pricing-a-clarification\/","url_meta":{"origin":1976,"position":0},"title":"What is dynamic pricing? A clarification (updated)","author":"Michael Rushton","date":"October 27, 2014","format":false,"excerpt":"'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\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"first-degree","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/10\/flea-market.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/10\/flea-market.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/10\/flea-market.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/10\/flea-market.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/10\/flea-market.jpg?resize=1050%2C600&ssl=1 3x, https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/10\/flea-market.jpg?resize=1400%2C800&ssl=1 4x"},"classes":[]},{"id":1621,"url":"https:\/\/www.artsjournal.com\/worth\/2014\/10\/whats-new-in-dynamic-pricing\/","url_meta":{"origin":1976,"position":1},"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":1873,"url":"https:\/\/www.artsjournal.com\/worth\/2015\/03\/dynamic-pricing-and-market-segmentation-at-the-theatre-and-the-hospital\/","url_meta":{"origin":1976,"position":2},"title":"Dynamic pricing and market segmentation at the theatre (and the hospital)","author":"Michael Rushton","date":"March 23, 2015","format":false,"excerpt":"This post is about theatre pricing, from a unlikely source. Today's New York Times has a piece by Austin Frakt on hospital pricing, and whether and how changes in funding of patients through public sector programs might change hospital charges to privately insured patients. Mid-way through, the article looks for\u2026","rel":"","context":"With 2 comments","block_context":{"text":"With 2 comments","link":"https:\/\/www.artsjournal.com\/worth\/2015\/03\/dynamic-pricing-and-market-segmentation-at-the-theatre-and-the-hospital\/#comments"},"img":{"alt_text":"how much for a bed with a view?","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2015\/03\/old-hospital.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":1976,"position":3},"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":[]},{"id":813,"url":"https:\/\/www.artsjournal.com\/worth\/2013\/05\/dynamic-pricing-in-a-disaster\/","url_meta":{"origin":1976,"position":4},"title":"Dynamic pricing in a disaster","author":"Michael Rushton","date":"May 26, 2013","format":false,"excerpt":"Dynamic pricing involves adjusting prices for a specific product in light of new information regarding consumer demand (see my earlier post here). Airlines and hotels will increase prices for a specific flight, or a room on a particular night, upwards if sales on those items are more brisk than was\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"should have increased the price","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2013\/05\/novacancy-300x200.jpg?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":1704,"url":"https:\/\/www.artsjournal.com\/worth\/2014\/11\/gender-and-price-discrimination\/","url_meta":{"origin":1976,"position":5},"title":"Gender and price discrimination","author":"Michael Rushton","date":"November 16, 2014","format":false,"excerpt":"Women pay more than men for some products. Why is this, and is this a situation where there oughtta be a law? Last week, Time reported that women consumers' advocates in France were pressing for a law that would prohibit price discrimination where men and women use virtually the same\u2026","rel":"","context":"In "issues"","block_context":{"text":"issues","link":"https:\/\/www.artsjournal.com\/worth\/category\/issues\/"},"img":{"alt_text":"it's going to cost you big time","src":"https:\/\/i0.wp.com\/www.artsjournal.com\/worth\/wp-content\/uploads\/2014\/11\/venus.jpg?resize=350%2C200","width":350,"height":200},"classes":[]}],"_links":{"self":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts\/1976","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=1976"}],"version-history":[{"count":3,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts\/1976\/revisions"}],"predecessor-version":[{"id":1980,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/posts\/1976\/revisions\/1980"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/media\/1979"}],"wp:attachment":[{"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/media?parent=1976"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/categories?post=1976"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.artsjournal.com\/worth\/wp-json\/wp\/v2\/tags?post=1976"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}