Dynamic pricing: how does it work and is it legal?
Last month, Ticketmaster and Oasis faced backlash after some fans (who’d waited for hours in a virtual queue) found that tickets for the band's reunion tour were far more expensive than expected.
Ticketmaster’s use of dynamic pricing – where prices rise when demand is high – meant some 'in demand' tickets had soared from the advertised £148.50 to more than £300 each. Fans hadn't been warned about this and were understandably outraged.
But although the Oasis ticket sale has caused controversy, Ticketmaster isn't the only company that uses surge pricing. A growing number of organisations, from a surprising range of industries, have adopted similar models in recent years. So whether you’re booking an Uber during rush hour or visiting your local pub at the weekend, you could face higher prices during busier periods.
Here, Which? reveals where else you might come across dynamic pricing, when it's in breach of consumer law and whether it's ever good news for consumers.
What is dynamic pricing?
Dynamic pricing is the term used to describe businesses adjusting their prices according to demand.
It essentially means you could end up paying more during busier periods and less when demand eases.
Most of these companies say they use customer data and artificial intelligence (AI) to monitor demand and determine when prices should rise.
- Find out more: how to get the best price when shopping online
Who uses surge pricing?
You might associate surge prices with airlines, which have long used dynamic pricing to increase fares during busy periods such as the school holidays.
Uber's surge pricing – which kicks in when there aren't enough drivers on the road to fulfil the number of taxi requests – is another example. You'll likely end up paying increased rates when there's bad weather, during rush hour or when big events are taking place nearby.
But other, more surprising, industries are following suit too.
Close to half of UK shoppers surveyed by Barclays last September said they'd noticed more examples of surge pricing. One in three had seen an increase in the price of food and drink in pubs and bars during peak times.
Britain's largest pub group, Stonegate Group (which owns Slug & Lettuce and Yates), increases prices by 20p in 800 of its venues during busier periods such as weekends and major sporting events. It said it's introduced the charge to help cover soaring costs.
Some theme parks and attractions will soon adopt dynamic pricing, too. Merlin Entertainments – which owns Alton Towers, Legoland, the London Eye and Madame Tussauds – announced plans earlier this year to increase prices on busy days across 20 of its global venues.
It will use AI to determine these price fluctuations which, it says, will help to avoid overcrowding during peak periods to 'protect the guest experience'.
- Find out more: the best flight booking sites (and the ones to avoid)
Do supermarkets use dynamic pricing?
Some supermarkets overseas are reportedly using dynamic pricing, with the help of digital price tags.
These electronic tags use AI to automatically lower the prices of products nearing their sell-by date, for example, which could help to reduce fresh food waste.
But whether supermarkets in the UK will adopt similar models is unclear.
Iceland, Morrisons and Sainsbury's all confirmed to Which? that they don't use surge pricing. We've yet to hear back from the other supermarkets, but will update this page if they respond to our request for comment.
- Read more: which is the UK's cheapest supermarket?
What are the cons for consumers?
As gig ticket prices skyrocket and school holiday flights remain far more expensive than term-time fares, some consumers could be priced out of certain sectors that use dynamic pricing.
You might be able to take advantage of better prices during off-peak hours (or when demand is low), but only those with flexible schedules are likely to benefit.
Families with children in school, for example, have no choice but to pay the increased flight fares during school holidays.
Budgeting can also become complicated if you're not sure exactly how much you'll be charged on your night out. Price fluctuations might also make it less clear whether you're getting a good deal or not.
Others have noted how dynamic pricing could lead to price discrimination, as products or services that are more popular in certain areas could be priced higher. For example, pensioners could end up paying more for certain products that are popular among their demographic because they live in a predominantly retired area.
Despite these cons, Johannes Brustle, PhD researcher at London School of Economics, thinks more companies will follow suit. 'It’s likely that more industries will attempt to adopt dynamic pricing in the future as larger amounts of data on consumer behaviour becomes available,' Johannes predicts.
'However, instances of extreme surge pricing and increased consumer awareness of the pricing model will likely generate more backlash.'
- Read more: tips for budgeting
When does dynamic pricing break consumer law?
Although surge pricing isn't inherently unlawful, the way it's used by companies can be. Under consumer law, the practice must be transparent and must not mislead customers.
Following the Oasis ticket sale, the Competition and Markets Authority (CMA) has launched an investigation into whether Ticketmaster's use of dynamic pricing was fair. It's looking at whether fans were given clear and timely information about price changes and whether fans were put under pressure to buy tickets within a short period of time.
Which? has called on Ticketmaster and Oasis to do the right thing and refund fans hit by inflated prices.
The CMA's investigation could serve as a cautionary tale to companies that use, or are thinking of using, surge pricing models.
'If prices surge drastically within a short time period and buyers are forced to decide to purchase within that time span, the company may be in breach of consumer protection laws,' Johannes explains.
'Industries will need to tread carefully when introducing dynamic pricing.'
