We have long-ago accepted the fact that Airlines change their pricing due to supply & demand; but should other e-commerce businesses be doing the same?
Well they already are.
This method of Internet business is called Dynamic Pricing, and it is legal. It allows for companies to change or fluctuate prices due to different variables, conditions, and situations. Companies see it as an opportunity to customize prices to individual consumers or business customers based on their purchase histories. This price segmentation approach is made possible through the power of databases.
The forces of supply and demand cause some e-tailers to continually analyze information and adjust prices accordingly. As inventory goes down, prices go up. This makes sense in the world of Airlines due to the perish-ability of their product. Sites like E-bay also take part in this pricing method due to their auction-like interactions. People can pay based on the value they feel appropriate for an item.
Contrary to the positive aspects of customization made available by the Internet, the ease at which companies can take advantage of consumers is astounding. The belief is that if someone is willing to pay more for an item, why shouldn’t a business charge them that amount?
As an Economics Minor this concept makes my head spin when contemplating the graphs that would be used to explain! The theory driving this pricing scheme is almost intangible.
The Pareto Principle states that 80% of a firm’s business comes from the top 20% of customers. Really?! Just because someone has more money to spend on something, and may actually be more willing to do so, does NOT mean companies should be charging higher prices. Perhaps my aghast to Dynamic Pricing is just the little Republican hiding inside of me.
But regardless, as a consumer I will now be more wary when shopping online in the future.
PLEASE enlighten me if you have any other view/information on this topic.
Filed under: Uncategorized, Dynamic Pricing, Pareto Principle
