Sarah Jaffe wrote in The American Prospect about the latest way to extract profit from consumers: surge pricing. It’s not only Uber and Lyft. It’s spreading into every corner of business.
She writes:
The internet nearly exploded this February when Wendy’s CEO Kirk Tanner announced that the fast-food chain intended to embrace “surge pricing,” raising the prices of a burger and a Frosty in line with customer demand.
The company had included a mention of “dynamic pricing” in its fourth-quarter earnings presentation, but clarified after the kerfuffle that the announcement of its new digital menu displays had been “misconstrued in some media reports as an intent to raise prices when demand is highest,” and said that it had “no plans to do that.” Instead, the new system would merely allow Wendy’s to “offer discounts and value offers to our customers more easily.”
The snark, which included Sen. Elizabeth Warren (D-MA), ranged from pure outrage to questions of whether the company would also offer “surge pay” to its low-wage workforce. But it’s not like Wendy’s invented price-gouging. A quarter-century earlier, Coca-Cola’s CEO mused about equipping its vending machines with thermometers, and triggering them to raise the price of a soda on a hot day. People hated that too; we just didn’t have social media then.
Wendy’s and Coke aside, surge pricing is spreading. Since deregulation in the late 1970s, airlines have used a form of it, with flights costing more at short notice or at high-demand times of year. Now, the practice has crept into golf courses, hotel rooms, gyms, pubs, and concert venues. Amazon alters its prices every ten minutes. Like Wendy’s, brick-and-mortar retailers are moving to digital price tags, allowing them to surge at will. Consulting firms like Sauce Pricing promise automatic surge pricing at restaurants to boost revenues. A chain bowling alley called Bowlero charged $418.90for two lanes one day last year. Surge pricing “will eventually be everywhere,” the Financial Times, that chronicler of modern capitalism, said last September.
Customers tend to want to know in advance how much something will cost, and though we’re used to the cost of a gallon of gas, or even a quart of milk or a can of Coke, changing over time, those things tend not to fluctuate rapidly over the course of a day or even an hour. People make a distinction between things you need right away and things you could wait for; between luxury items, like market-price lobster at the hottest restaurant in town, and something we all know is cheap and easy, like a Wendy’s cheeseburger.
As companies gather more data available on consumer preferences, the process of algorithmically adjusting prices rapidly based on supply and demand will get easier, affecting all sorts of goods and services we’ve grown to count on. And there’s a case study in how this affects not only consumers but the workers who serve them. You encounter it every time you hit up your phone to find a way home.
IN RECENT YEARS, “SURGE PRICING” has been mostly associated with rideshare companies like Uber and Lyft. It was one of Uber’s earliest sources of bad press, even back when the tech press mostly penned breathless paeans to genius founder-disruptors. Uber took advantage of dysfunctional taxi systems in cities like Washington, D.C., to win goodwill, according to Kafui Attoh, associate professor of urban studies at the City University of New York’s School of Labor and Urban Studies and co-author of Disrupting D.C.: The Rise of Uber and the Fall of the City.
The pricing system was justified as a way to encourage drivers to come out at peak times by offering them more money, something that a regulated taxi system could not offer. It worked, ostensibly, by some combination of three incentives: reducing demand for rides because fewer people could afford the higher price; offering drivers a higher rate if they hit the road; and getting already-working drivers to head to the high-rate zone.
But regulated taxi systems at least offered a steady price that users could count on, whereas Uber’s sudden price spikes turned a short ride home into a luxury good. Uber spokespeople would suggest that riders simply wait for prices to fall again, but anyone who’s ever been stranded at closing time or missed the last subway knows that waiting sometimes isn’t an option.
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So when do we think American consumers will finally catch on and understand that regulation is actually a good thing, that supply/demand fluctuations are ostensibly a myth, and that corporate largess keeps us victims of the ongoing grift known as capitalism?
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When, indeed!
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I think this quote answers when US consumers will catch on:
“You can fool all of the people some of time; you can fool some of the people all of the time, but you can’t fool all the people all the time.” Attributed to Abraham Lincoln in The New York Times, August 27, 1887
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This is a timely post. My grandson is visiting from Texas. Yesterday my husband was going to take him to a water park that they had already visited last week. Their prices were clearly posted online. When they went to pay, they were informed that each ticket would twenty dollars more per person than the listed price due to “surge pricing.” He could have paid the difference, but he decided to walk away in principle. It is the only way to let businesses know that people reject being snookered. My husband took my grandson to the movies instead, and my grandson had a good time anyway.
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Surge pricing is capitalist extortion.
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I’m going to try this once more. Surge pricing. Shrinkflation. Crapflation. False advertising. Deceptive packaging. Deceptive product descriptions. These all fall under the general marketing principle “Screw your customer.”
And then Economics professors will come onto social media to tell you just how wonderful this is because Capitalism is the best of all possible worlds. “You’re going to love it when they stick in the needle and suck out your insides. It feels all warm and cozy.”
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Since it is election time, Trump and the Republicans will blame this price surge on Biden. The timing of this surge couldn’t be better for Trump and his re-election bid. If Trump gets elected then cost of living will continue to grow as well as the homeless and hunger in this country. Count on it.
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I wonder if “it”dynamic pricing” has hit the supermarkets. Anyone seeing prices for mayo close to $7? Ridiculous! I am going to be eating cat food soon. And they keep advertising these premium brands that mimic the appearance of the food we would eat. Maybe that’s why, because we are! It’s a good thing I am old and don’t need much. It’s disgusting how companies are trying to figure out how they can increase their profits while cheating both their workers and the consumer.
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“It’s disgusting how companies are trying to figure out how they can increase their profits while cheating both their workers and the consumer.”
The true American Way!
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Here is an interesting story Planet Money did on dynamic pricing in supermarkets in Norway. They point out that static pricing is a relatively recent invention as haggling was the norm for thousands of years.
https://www.npr.org/2024/03/06/1197958433/dynamic-pricing-grocery-supermarkets
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Interesting idea: we all time our shopping trips when prices are lowest. How will the supermarket change all their prices? Will you stand there and wait to see whether the price is going up or down?
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if you listen to the podcast you will learn that the supermarkets in Norway have been doing dynamic pricing for over a decade. They sometimes do as many as 2,000 prices changes in a day, often to help adjust their inventory. For example, the price of fresh made bread drops by 50% in every store at 10 pm. Using dynamic pricing has resulted in a 40% drop in food waste. They also have one pricing rule: over the course of a day prices can only go down. Price increases happen overnight.
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