As you read this, prices are changing and can vary several times today. Dynamic pricing makes use of machine learning and artificial intelligence to determine changes in the costs of goods and services.

Setting prices for a product of service is an economic art to ensure a profit from the sale of each item. However, a fair price as perceived by customers is also necessary for attracting repeat sales.

Dynamic pricing differs from price gouging, which involves exploitation often because of a natural disaster (hurricane, tornado, earthquake). When an extreme need for water, food, batteries and other necessities exists, a business may radically raise prices on those items: that’s price gouging and is prohibited in many states.

Examples of dynamic pricing include:

• Online retail prices can vary several times during a day. These variations are based on supply, demand, prices charged by competitors, the season, and clicks for an item.  The price may also vary if purchased on your phone or on your computer.
• Fast-food businesses and other restaurants may adjust prices based on customer tracking data, demand and peak times.  Dynamic pricing can encourage customer visits on less popular days and slow times.  A backlash can occur when customers know they are being charged more during lunch than at other times of the day.
• Ticket prices for sporting events, concerts, and Broadway shows in great demand are often higher than other events.
• Airlines are a major user of dynamic pricing. Weekend airfares are often more expensive than weekdays as are holiday travel prices.  The fare can vary by day, location, weather, and other factors.  Flexibility of travel dates, checking online sites at different times, and viewing online calendars provided by airlines can result in savings.  
• In addition, dynamic pricing is used by hotels, local stores, supermarkets, gas stations, car rental companies and others.

In the future, expect companies to continue to use technology to change prices many times each day. Consumers need to be smarter, shop around, and be diligent. Bottom of Form

For additional information on dynamic pricing, click here.

Teaching Suggestions

• Have students monitor prices several times over two weeks to determine changes in an item in a store or online.
• Have students identify online sites and apps that monitor prices to assist consumers in getting the best prices for various items.

Discussion Questions 

1. What factors commonly affect price changes for items you buy regularly?
2. Describe actions a person might take to get the best prices.