“You know you’re priced right when your customers complain—but buy anyway.” — John Harrison
Dynamic pricing is not new but it has not been widespread up until recently.
We all know about train fares being more expensive during peak times and parents know that holidays cost more during school breaks than at any other time of the year. Airline tickets are subject to dynamic pricing and there was a trend towards off-peak electricity tariffs at one time. This summer we saw tickets for Oasis concerts subject to dynamic pricing, resulting in massive spikes in the cost of a ticket.
Dynamic pricing is when a company changes their pricing to match demand and supply. Hence train journeys are more expensive during the rush hour than in the middle of the day when demand is lower. Holidays are more expensive during school breaks because demand is higher from families with children.
Few of us like this traditional method of dynamic pricing but we have accepted it as part of our way of life. The old fashioned dynamic pricing model was fairly unsophisticated and based on the time of day in the case of rail and airline tickets and specific weeks and months of the year in the case of holidays.
This is no longer the case. Artificial Intelligence allows companies to literally change prices in line with changes in demand every second if they so want. Some of the companies using AI to set prices are Amazon, Uber, Airbnb, Tesco, Ocado and Sky. Amazon is said to reset prices every ten minutes.
The days of “fixed pricing" are fast disappearing. Long gone are the days when a company added up all of its production costs to work out the cost per unit and then added a little bit more in order to make a profit. This was basically what is known as the objective or labour theory of value. This has been supplanted by the "subjective theory of value" (STV).
According to the subjective theory of value a products worth (price) is not determined by how much it costs to produce but by how much people are willing to pay for that good at any given moment. At its worst this means that ALL goods and services should be sold for maximum monetary return regardless of the cost of production. No wonder supporters of neo-liberal economics favour STV.
At one level this doesn’t really matter. Oasis concert tickets may have doubled in original price due to dynamic pricing but not being able to afford a concert ticket is not a matter of life or death. It is however, symptomatic of a growing social problem.
The assumption of neo-liberal economists and their support of STV pricing is that individual choice is paramount in all economic transactions. For the neo-liberal societal values do not exist, there is only individual choice. Mrs Thatcher, the woman who championed neo-liberal economics in the UK, famously said: “There’s no such thing as society”. Many Tory's still believe this to be true but they are demonstratively mistaken.
During Covid we all stood at our doors every Thursday night clapping and banging pots to applaud the bravery of our dedicated health professionals. Yes, we did this as individuals but also as a society. When the England football team were progressing through the stages of the European cup we watched each game as individuals but also as a nation. The same is true of the recent Olympic and Paralympic games.
Ironically, some of our most ardent neo-liberal Tory MP’s have been recently admonishing us for not being proud of our English identity. Robert Jenrick, a contender for the leadership of the Conservative Party said yesterday that English identity had “started to fray” due to mass immigration and public institutions “dismissing our history”.
Sorry, the neo-liberals cannot have it both ways. Either there is an entity called English society, with its own history and set of values, or we are just individuals all acting according to our own individual needs. The fact that latter view is obviously mistaken does not deter the advocates of dynamic pricing. For them the goal is maximisation of profit regardless of social cost.
A thousand reasons why dynamic pricing is good for the consumer will be rolled out as more and more companies adopt this system of pricing, but the bottom line will always be making more profit. And in a system where pricing is determined by what price the individual is willing to pay rather than the actual cost of production, in the end it is only the rich who benefit.
South West Water has recently introduced the cruder form of dynamic pricing to their customers. They will be charging more for water use in summer than in winter. Consumers were given no choice about this and they have yet to be told what the charges will be. This “trial" will last for 2 years.
“These pioneering trials are designed to make sure that water bills are fairer and more reflective of individual consumption patterns and are part of our wider commitment to making customer-first decisions in everything we do.” (CornwallLive:19/09/24)
Note the emphasis on “individual consumption". To my mind water is a public good, a societal necessity. As such I want to see pricing evened out over the whole community. Under dynamic pricing the rich can consume as much water as they like because they can afford to pay, while the poorer members of society will have to suddenly become use conscious. While the rich fill their swimming pools and have the lawn sprinklers on day and night, the poor will have to think twice about how often the toilet is flushed, how often the washing machine is used and can they afford to shower everyday. The poor pensioner will be calculating whether or not they have enough money to water their beloved garden.
Ok, my pensioner being unable to afford to water the garden is a hypothetical scenario. The cost of music venue tickets isn’t, neither are the prices you pay for an Uber, a holiday let from Airbnb, the food you buy from Tesco or Ocado. Even the price of a pint is now affected by dynamic pricing.
“A campaign group representing pubgoers has criticised the move by Stonegate, Britain’s largest pub company, to raise the price of pints during its busiest trading hours in some of its venues by 20p..." Financial Times: 12/09/24)
If the price of a British pint of beer is now subject to dynamic pricing then nothing is sacred!
More seriously, when the market economy becomes the market society, when those in power promote the value of maximising profit for the few at the expense of the happiness and well being of the many, then, as a society, we lose all sense of humanity, morality and common decency.
There has been much theoretical discussion of late about the threat of Artificial Intelligence to humanity. I would argue that maybe we should be more concerned about those humans using AI to enrich themselves at the expense of the rest of us.