I had an interesting discussion after yesterday's post about the difficulty of regulation to prevent dynamic pricing. It highlighted a key difference between Uber surge pricing and otherwise similar dynamic pricing in retail or fast food contexts.
As I noted in this 2015 post:
...surge pricing is used to manage excess demand - when the quantity of Uber rides demanded by users exceeds the quantity of rides available from drivers at that time. In other words, there is a shortage of available Uber drivers.
Surge pricing solves a market problem - a shortage of Uber drivers. Increasing the price of Uber rides induces more drivers to make themselves available, increasing the quantity of Uber rides supplied. This reduces the shortage of Uber drivers, and makes it easier for Uber customers to find a ride (albeit, a more expensive ride).
The dynamic pricing I've been blogging about this week doesn't work that way. It doesn't solve a market problem. There is no shortage of Wendy's burgers, where raising the price would induce Wendy's to offer more burgers for sale, reducing the shortage.
So, while you could argue that Uber's surge pricing may make some consumers better off (since they don't have to wait as long for a ride), it's more difficult to make that case for Wendy's dynamic burger pricing. As I noted on Monday, maybe the burgers will be cheaper in periods of low or elastic demand, making consumers who are buying at those times better off. But the burgers will be more expensive in periods of high or inelastic demand, making those consumers worse off.
Now, none of this means that the appropriate response is for government to regulate dynamic pricing. As I noted yesterday, that regulation would likely break a bunch of things that we wouldn't want broken, and may simply end up with consumers all worse off as a result. However, that just means that there isn't anything easy that government can do to intervene. Consumers themselves have some power here too. And indeed, that's exactly what happened with Wendy's. After consumer backlash, they walked back any plans to roll out dynamic burger pricing.
I still think it's coming eventually. Obviously, just not yet.
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