What Thaler's quotations show clearly, but which the author seems to gloss over, is that it is the customers' *sense* of fairness that is violated by surge pricing. Surge pricing is not a violation of some abstract standard of fairness. In a world more perfect than the one we live in, people WOULD respond more rationally to surge pricing and recognize it as an efficient way to allocate resources. Instead, marketers have to spend time and energy fooling people so that their warped and selfish understanding of "fairness" goes unchallenged.
11
I'd've liked to see more discussion on airline pricing, which depends both on when the flight is to occur, and on when people buy their tickets. I think it is the latter that makes so many people so angry (now compounded by the nickeling-and-diming of extra fees). I'd be most curious to see whether there has been any research on customer acceptance of different airfare "surge" pricing schemes, and whether airlines have considered alternatives to present practice.
5
Good article. Small complaint: calling Marie Connolly, an economist at the University of Quebec, would be similar to referring to any UCLA prof as a University of California prof. University of Quebec is a system of ten provincially-run universities similar to those in many states. Connolly work at the University of Quebec in Montreal, but I'm guessing everyone would understand if you use the correct Université du Québec à Montréal....
2
The real problem: current dynamic pricing software is unable to optimise different goals, like demand and supply vs generate higher revenues.
To eliminate the secondary market, maybe when you enter the concert you can show your ticket stub and your credit card at the gate to confirm that you paid the face value of the ticket. The two would need to match. Technology already links the two together.
8
I beg to differ with the last sentence in your article: "it doesn't take a Nobel to understand that". Actually, it does.
Dick Thaler, a colleague of mine who I first met at a conference 30 years ago, was denied tenure at a major university because "he didn't do economics". He and Danny Kahneman - another Nobel Laureate - and one of my co-authors, Jack Knetsch - who may be a future Nobel Laureate - did ground breaking work in a field now known as Experimental Economics. Sensing this fairness argument, and understanding it, are very different things. And being able to explain it in plain English, like Dick did in the movie the Big Short" is most definitely not a simple thing.
Here is an interesting, and somewhat persuasive counter to these arguments from a well known economist, published recently in the WSJ.
https://www.wsj.com/articles/price-gouging-after-a-disaster-is-good-for-...
6
The problem with economics is that in another field like marketing the first course teaches the four p's(product, price, place, and promotion). It would seem that you can get a Nobel prize by simply bringing one or more of the other p's into the equation. Cable companies address sticker shock by bundling. Insurance companies simply keep raising the rates. Smart companies like HD value their reputation. Reputation once lost is hard to regain.
Dear Mr. T. M.:
To use the word simply with respect to how one wins a Nobel demeans your argument. Nothing in life is simple, and nothing more so than receiving a Nobel. The Economy still functions as it always had. Someone produces a product others value and are willing to pay a price for. The problem with cable companies, insurance companies, and Home Depot is that much of what they are peddling is a sham. We don't need all those cable companies, we don't need for-profit insurance companies, and we certainly do not need HGTV do-it-yourself obsessives coerced into believing there is no perfect house, that no matter how marvelous their abode, it can't always need some demolishing and rehabbing before it attains perfection. What most Americans have never learned is there is never "enough". One can never be satisfied. There is always one other thing that is needed to make their lives perfect. What American haven't learned is this axiom: the more you know, the less you need.
DD
Manhattan
15
One aspect not covered is the changes in supply that are driven by changes in price.
Several hurricanes ago, people were outraged that desperate homeowners where being charged high prices for sheets of plywood. The governor labeled this profiteering and froze the price. While this might prevent a homeowner from paying a high price, it might also mean that he would not be able to find any plywood when he needed it.
Plywood is a widely distributed commodity. If businessmen -- or homeowners -- anywhere within a days-drive has a substantial quantity, they could load it up and bring it to where it is needed. If they are generous, they could give it to the hurricane victims for free. If they needed the money, they could sell it.
If the price was "outrageous", many more sellers would load up and hit the road. The price would have to be high enough to convince them to take the time, cover the expenses, and run the risks of road hazards, over-supply -- and price freezes.
3
Think about selling your home. Who among us is willing to sell his home for less than the maximum amount we can get?
2
Dear JPEC:
When no one wants to buy your house the selling price you are willing to accept is moot. It's worth nothing no matter what you paid. And so you are stuck with a white elephant on your hands. It happens more than you know.
The problem I have with your argument is that what someone's house is worth versus how much a ticket to see the Boss is worth is not analogous. For me, a ticket to see any form of entertainment is worth absolutely zero when I have other priorities to consider quality of life issues. Apologies to Springsteen, I love the man, but really, if anyone thinks some nebulous thing like a concert experience is worth using that money for something more important defies my sense of logic, as it should anyone else.
DD
Manhattan
4
How would you feel about an ambulance company using surge pricing during the Las Vegas massacre?
Short-term profit isn't the only consideration for a business with long-term goals.
11
With concert ticket price at 1200 ~ 9999 per person, no wonder someone suggests that New York city middle class income upper ceiling should be $400,000.00 for tax reduction. Only over that amount, federal income tax will kick in. This ticket price is shocking to me really. How many could afford such a ticket price in the US? NY Times just said the other day that the city has over 110,000 homeless school children. If Mr. Springsteen knows this, I am sure he will donate all the proceeds to help those homeless.
3
"Too much rubber and not enough concrete" is the way I once heard a radio traffic reporter describe a Dallas freeway one morning.
Any which way you look at it, what we really have too many or too much of is people. That problem will eventually solve itself at some future point in time, when "natural disasters" that are now only in their infancy but, thanks to man and to men like those Trump surrounds himself with, will soon (sooner than we think) reach a stage comparable to the hormone-addled teen years of the human race. And that's when it will be too late. All the preplanning in the world by Home Depot, or the instant response by an Uber manager with his finger on his computer keyboard will change nothing.
5
How does raising prices to meet demand not constitute gouging ? It enriches the seller and prices the less affluent out of the market; doesn't it ? The rich do not care how much a Springsteen ticket costs; they will pay to see the Boss sing about the poor workingman, drive in a congested city or on an open lane or stay cool or fly away from a storm or buy a generator to at any cost to keep the Miramax movies playing in their dens when the power is off; those who can't pay what the market wants must do without, rearrange plans or suffer. That's America's feral capitalism. Nothing good here; fairness does not trickle down here in the USA.
8
In the sixties, yes I know, we arrived as early as 4 a.m. or just slept on the sidewalk in front of Preston Tickets at the I believe the Prsston Bank of some sort on Preston road in dallas texas. I got front row or close to the the doors, airplane, the zeppelin, rod stewart with Faces, jimi Hendrix, and some I can not recall. Really. I am seventy now and I remember this as great fun and great seats for usually six dollars. Rreally. l would not do this again for anyone. It is another world now, for the younger. We had fun. Much cheaper fun but that was then and this is now? William Wilson dallas press club 1981.
4
Yup. British Air wants to charge me $600 for Boston London round trip in February but $2500 one-way. Booked with another airline.
2
Unfortunately, this pricing thing also has results that make people mad when they watch tennis on TV. Yes, the venue (US Open, French Open) can charge whatever and make a killing. And they do. And then you see half the stadium empty. They don't care. They made their money. And some rich people or corporate just don't show up (at the US Open!!) It's just an awful selling point for your product.
5
Surge pricing is just another name for price gouging.
8
Surge? Try surge in greed and avarice. Pretty nasty for taxis and concerts, but look what's has happened for medical care. The need/demand is uncontrolled (cause you must have care when you are ill or injured) and the supply is capped. So we have a $20k charge for a day or 2 in hospital. And the doc in the hospital who treats you who takes no insurance may charge you thousands in excess of your out of network coverage.
Demand based pricing is only a success if you are not the one needing the commodity or service.
4
Can anyone explain to me why they would see the farm to attend any entertainment event? Why Americans are willing to spend a fortune to attend a sporting event and not pay more taxes for universal health care has always confounded me. Americans as a whole come across as penny wise and pound foolish. What they value has very little value as far as I can see. The quality of their daily lives are more important. Foreign friends of ours who come to visit are amazed at the abundance of consumerism. They baubles, bangles and beads available to Americans astounds. Americans have everything they want yet very little they need. When seeing Bruce Springsteen, attending a Yankees game, going to a Broadway show, takes priority over health care, infrastructure, and things that are of value to society I see a nation that knows the price of everything and the value of nothing. A country that could condone a Constitution is which a candidate for president can receive three million less votes and still become president strikes me as some more consequential in my life then singing "Born In the USA" with the Boss. Born in the USA indeed.
DD
Manhattan
8
Last night I settled down to a Friday evening movie at home and dialed up War for the Planet of the Apes on my PPV. I had to buy that movie for $22! I am outraged. I feel like nobody can make an honest buck anymore. I have to buy wrapping ribbon on spools with 10 colors, 8 of which are ugly; I have to order X number of TV channels in a "package" even if I don't watch but 2-3 of them; I try to play a free game on my smart phone and have to pay $1.99 for a hint. We're all being squeezed to death for the sake of profit $1.99 at a time.
4
Now for an article about how some huge "communications" corporations, namely Cox Cable here in Las Vegas, are able to secure a monopoly which allows them to charge exponentially more for the service than it costs them to actually provide it, then to capriciously raise their rate for basic Internet every few months, then to buy our local politicians to look the other way, then to send out an army of PR hacks to trumpet their wonderfulness after they served up "free" wifi to the poor suffering community for a few days after the Mandalay Bay mass murders.
7
I guess Money is the only thing that counts any more. This way of doing things has sure made America great in the last twenty years.
1
I assume Martin Shkreli is in the running for the igNobel prize.
I can just see it - a "smart grid" that tricks "smart appliances" to run more during peak power cost times to boost profits - all without hacking. Isn't that what a Shkreli-like CEO would do? I think he graduated from the Enron School of Gouging.
Too many businesses thrive on sticker shock selling - car dealers, cellphone and cable companies, and don't forget the mother of all sticker shock businesses - Health Care and medications, where pricing is such that you may be better off dead.
3
Regarding electricity pricing, and the possibility that rich people will take higher prices in stride, while poor people will pay a penalty: in some situations, discriminatory pricing might be used. For example, a rich person’s speeding ticket could be more expensive than a poor person’s, the rationale being that they should have the same bite to each. I believe it’s done that way in Denmark. It probably wouldn’t fly in the US, although it’s hard to put a finger on why.
5
The pricing doesn't make as mad as the failure of systems. The "Verified Fan" system at Ticketmaster was working fine for the Springsteen Broadway show until I selected my seats for a January performance. The system 'thought about the purchase' for 10 minutes. Then kicked me out and back to the welcome screen. I was never able to log back in. THAT makes me much more upset than the pricing.
3
Some well-received comments, albeit few and there is no doubt that 'surge pricing' is fueled by rising inequality. My argument is not that there should be perfect equalities in purchasing and supply powers but that these companies are engaging in surge pricing precisely because it's becoming increasingly profitable to do so as the majority of consumers are being left behind - especially when it comes to the use of dwindling disposable income.
This notion that Home Depot is magnanimous during times of crisis is completely ridiculous. The reason 41 trucks of materials were sent to Florida had nothing to do with being of assistance and everything to do with profit. If Home Depot would lose money on such a venture than not a single semi-truck would have moved even though the owners and institutional investors make billions.
I have found an effective way to deal with surge and other forms of greed: don't support it. It would be fun or rewarding to see a certain performance of something or other but I can easily live without it in this new economy. I won't support the artists, producers, ticket sellers with their obscene fees. It's called a boycott. Just as I began boycotting goods made in China after all the jobs went there, I boycott other entities that don't do what's right, in my opinion. We all have a powerful tool in that.
5
Perfect example of price gouging - Dead & Co at Madison Square Garden, $475 general admission ticket on the floor. Yes, the $100 seats are in the rafters. It's disgusting, and in my opinion, they are taking advantage of nostalgia of the fans. Some (many) people are willing to pay this price but my husband and I are boycotting.
Almost $1000 to see a Dead show? Jerry should be turning in his grave.
3
The thing that amazes me most about economics is the way people talk about "the market" it as if it was some sort of independent entity, inviolate in it's god-like state, and that we are transgressing something almost sacred by "interfering" with it. The notion that doing so constitutes "some irrational rejection of economic logic" is poppycock.
We Humans created 'the market', and gave it the characteristics with which it operates. These are not the inviolate laws of physics, but rules *we made up*. We can change the rules as we like. We need to stop looking at 'the market' as if we exist to serve *it*, and not the other way around.
The only reason that we have electricity, Uber, Home Depot, and Bruce Springsteen concerts is because the social contracts that we developed to help us survive as a species allowed us to also create civilization. We all have a deeply ingrained need for fairness, and "surge pricing" when the obvious or perceived motive is increasing profit (otherwise known as "gouging"), violates it. That doesn't meant that it can't exist - it just means that if you don't want it to come back and bite you, you'd best have a reason beyond "it makes us more money", or a benefit beyond increasing the access of the wealthy to things we all need.
6
This article is mostly about price signalling, which I suspect will work less effectively as the middle class is hollowed out. Those with large unearned fortunes don't care about price signals, except for Veblen/positional goods (i.e. status symbols). The poor are often unable to respond to price signals because of inflexible schedules, limited resources, and because they've already trimmed all fat from their spending.
It will work in cases where response to the signals can be easily automated... e.g. for electricity, running AC harder for a period, then slower for a period. Other goods, not so much.
1
Price surging may make sense in some situations, but people get mad because they don't like surprises, and many can't afford them. Jessica Seinfeld can afford a $400+ surcharge but many people can't. Also, many people with jobs and family cannot stay awake all night to do the laundry and run the dishwasher at 2am just because it would be cheaper to do so.
4
Scalpers created this problem, not Springsteen. The last time I stood in line to buy a concert ticket - long ago - there were about 20 people who were first in line, all of them appeared to be homeless men who were being 'bossed' by one particular man who was standing on the sidelines and keeping them where he wanted them. These men were not Bruce fans, they appeared to be people who were recruited from homeless shelters. Now there are ways for these brokers/scalpers to scoop up all the tickets online the minute they go on sale.
Blaming Springsteen himself for the wild variations in ticket prices is stupid when he has ensured there are some tickets priced in double digits. Springsteen is obviously doing the show because he enjoyed the challenge of designing an intimate theatrical experience and thought fans would show up - he isn't doing the show because he needs any more money. He could just play to 15,000 people at the Barclays Center every night for 2 months if this was about $$$.
1
Oh the horror of leaving money on the table because the exploitable weren't exploited enough! Surge pricing or exploiting supplly & demand only applies to the poor. The 1% are unaffected. They buy what they want, when they want, economics are irrelevant. The rest of us have to decide what to do without if we want to go see Bruce or Hamilton.
5
This is precise reason that Asian Americans are enraged at the Ivy Leagues, the lack of transparency and fairness.
After playing by the published rules, they find the Ivies have moved the goal post for Asians under the rubric of "Holistic Admissions" and taking Asian American's hard won accomplishments for granted.
If the Ivies truly believed in their mission and want to build a broad base of support among Asian Americans for "Diversity", they would add "Transparent Admissions" to the equation, instead of destroying notes and records from the admission process as soon as each year's admission cycle is over.
What are they trying to hide ?
Jews did not let the Ivie's racist quotas against them slide, they pursued legal and political remedies over many decades until the quotas were lifted.
If the Ivies continue to give Asian Americans their back hand, don't be surprised that Asians Americans will join the political foes of the Ivies and pursue policies like taxing their endowments and cutting off government grants with unbridled rage and fervor.
3
Remember when RICO used to worry greedy people? Evidently it doesn’t anymore.
3
Uber seems to be in 24/7 surge. Why is Lyft always cheaper?
2
fairness - a human demand - as social animals we get real riled at things we perceive as unfair.
I'm sitting in a hotel room I paid about 70% more than for the previous night in a nearby town - why ? 'cos my searches found almost nothing available, and there's an attractive event here, and it's a bigger city. It irked me - but I paid it.
To quote Groucho Marx - "The secret of life is honesty and fair dealing. If you can fake that, you've got it made." - although it appears that attribution may be fake - https://quoteinvestigator.com/2011/12/05/fake-honesty/
1
Ah, Uber... so altruistic, so much so that...
- their app could tell when your phone battery was getting low and would surge price you knowing you didn't have much choice.
- the same uber that shaved money off the fees owed its drivers in NY ad elsewhere...
You mean that uber? Or a different one?
1
Ah yes, a world in which we offer every good or service to the highest bidder, and we price things as close as possible to an individual consumer's breaking point vs. what is morally and financially prudent.
Why price a cancer drug at a rate that offers a reasonable profit?!?!?! This makes no sense!! If a consumer does not buy the drug, they die, which means they will surely pay more! Price it as high as possible, and ensure we hit the perfect limit that allows us to bankrupt as many consumers as possible!! Who cares about saving lives!!
Why price music and theatre tickets at a reasonable rate and promote the arts to a wide range of Americans?!?! Are you crazy?!?! We can price them at a rate that only the elite can afford, or else at rates that fleece the pockets of the common man! Let's make as much money as possible!!! That's all that matters!!!
Welcome to America, the land of unbridled capitalism, in the Age of the CEO, where profit is above all else.
Disgusting.
8
Everyone hates surge pricing, but somehow everyone loves rising wages when the labor market is tight? Irwin's essay is nothing more than the New York Times being, well, the New York Times.
2
You can get a nobel prize for common sense?
Article was too long to read.
bruce is worth every dang penny
amazing show!!!!
1
So, it's ok to surge BS but not EpiPen. Americans, it seems, will pay for Sports and Entertainment but not for healthcare. Maslow had it all wrong.
1
The problem is for most of us, that the prices for things like concert tickets for example have priced a vast majority of the people out of the market. Most concerts we attended back in the 60's and 70's were 5 or 10 dollars for great seats in most venues. That five dollars in 1975 is worth about $24 in 2017 but the price of concert tickets now start $75-$100 for an equivalent seat. Talk about exceeding the rate of inflation. The outmarket or after market is almost entirely for the well off and well to do, not the general public and the outrageous prices on stub hub reflect charging as much as the market will bear because there are enough wealthy out there to buy the tickets.
4
While worthwhile to understand, it is important to note that Mr. Thaler is stating the obvious -- we're human.
We don't act "rationally" and certainly don't act rationally with respect to emotionally charged purchases.
Somehow this deserves a Nobel prize.
What it demonstrates though is just how pervasive and entrenched Rational choice based economic analysis is, and how we still have a long road to go before that myopic, simplistic world view/belief system goes the way of bleeding to cure "ailments" and spontaneous generation.
Behavior economics is the future, but it's going to take a long time if something this no brainer deserves this much accolade.
3
You are so Right. Plus, the great Behavioral Econ discovery of "choice architecture" merely assigns a fancy label to a practice that salespeople have known and practiced for at least hundreds of years. I encourage all to read the "mail order" sales books of 100 years ago. BE has contributed nothing.
By this comment, I in no way endorse the textbooks or research that most economists rely on today--or for the past 50 years.
I have long invested in and managed a rental property portfolio and I have taught Urban Land Economics at leading universities including Stanford and UBC. ULE contributes almost nothing to understanding how real property investors evaluate and manage property investments.
1
Leaving money on the table? The Springsteen tickets were priced beyond the fans' ability to pay even before the resellers got involved. I love Bruce and I have been to more shows than I can count but I decided to skip Broadway, too expensive for me. He should go back and listen to the lyrics of his songs.
3
Yes, economics, the "dismal science". The real danger in the increasing application of these sophisticated pricing decisions, is that even affluent people will despair of the time it takes to use them usefully. Of course, everyone with the mathematical ability could develop his/her own algorithms for purchasing decisions, competing with the pricing algorithms, but for nearly all of us, this is much too daunting. Instead, we will (and do) merely restrict our purchasing, in order to avoid the competition; i.e. simply doing without. Then, we often find that we do not miss, and likely never really needed, anything but our eventual release from all of this.
1
I applaud the idea that we should pay attention to our Nobel winners, who may, after all, possess some "wisdom." It would also help to realize that ideas and wisdom have "fad" aspects. Some Nobels in the past were for ideas we now see as mistaken. And some Nobel winners are later ignored, as fads in science move on.
"Fairness", just discovered by today's behaviorists to be an important force across species - was studied in detail in the early days of "Ethology" - which, along with many other insights, is why the founders of that field won a Nobel in 1973.
Our desire for fairness is deep and broad, and documented in many species. If we have been unfairly treated - yes, there are consequences. I will say "We knew that." - thousands of years ago. Read the laws and Proverbs in the Old Testament if you doubt, and count how many points have to do with fairness, and dealing unfairness. For the whippersnappers who will guffaw that such writings cannot be considered "true", without further statistically valid testing - actually- the Old Testament was Peer Reviewed.
Pricing energy according to its cost, so that the wealthy can afford it and commoners cannot - is unfair and unnecessary. An alternative is to price energy in a "tiered" system; where average annual consumption is not very expensive- but when people consume more than "normal" the cost goes up as their consumption becomes outrageous.
"Demand" - is a myth. Fairness - is important, and possible.
2
While broad economics may play small role, this is really a branding equation. The fundamental exchange of value and worth, emotion against rationale. Higher order, not classic supply and demand economics.
Bruce isn’t leaving money on the table, he’s creating long-term value for his brand.
Home Depot isn’t loosing potential revenue, it’s building equity with its
Brands are always more valuable than their company, if managed correctly.
2
Despite the nods to fairness, surge and dynamic pricing have only one goal -- to increase profits. The highway system and utilities are for the good of the public at large. Setting prices at levels which effectively exclude those with insufficient funds to take advantage of them is anti-democratic.
4
Shortages of goods or services during periods of peak demand can be caused by physical constraints, improper price signals, or both as is pointed out in the article. For electricity, the problem has almost always been physical constraints and not pricing.
For 100 years, it has been impractical to store electricity; this is unlike any other commodity that is crucial to our daily lives which we store in great quantities (think water and food). The electric grid is one big “just in time” delivery system where electricity must be produced immediately when needed. Because there are hours of great demand for electricity, driven especially by hot or cold weather, the electric grid has been forced to have many redundant power plants that operate only a small percentage of the year.
Although there are good ways to incentivize some reduction in demand during these periods, there remains a basic human need for heating, cooling and other services provided by electricity. An emerging solution is to utilize the falling cost of lithium-ion batteries to build storage into the power grid. Arrays of batteries can now be cost-effectively deployed to store electricity in periods of excess and have it available during high demand periods. Progressive utilities are leading the way today to bring energy storage to the grid. Such battery arrays are also helping to integrate cleaner forms of power production by helping overcome problems with intermittency caused by wind and solar.
4
To me the most important take away from this article comes at the end. If a customer is told the actual price of a good or service while he is still in the decision making phase, he will be much more satisfied about the result. The true feeling of unfairness comes about with the surprise bill.
1
This little nugget made me pause: "Woe betide the utility executive facing customers who are angry upon suddenly receiving a $2,000 electricity bill after a heat wave." I fear its gllbness unwittingly conveys a "let them eat cake" mentality about the incomes most American households. That $2,000 may well have to come out of the college savings (or prevent such savings to begin with), may mean new credit card debt to cover other ordinary expenses, could lead to the cancellation of a vacation, and will certainly prevent families from otherwise contributing what they otherwise would have to their local economies. For most people in the U.S., an unexpected $2,000 bill would have dire consequences for their personal finances.
3
I doubt the 2K figure mentioned is based on any kind of pricing reality. Can you really imagine a $200 dollar summer bill going to $2000? They're playing with us.
Very nice insights are woven together here -- how Thaler's behavioral economics adds deeper dimension to the debates about surge pricing. Shows how that brings out deeper issues of fairness and long-term relationships, beyond the usual knee-jerk responses.
When we look beyond the surface, we see that fairness in long-term relationships is what really matters for economics to work, and leads to the values that we all seek. Thaler has developed behavioral economics to look deeply at those deeper issues.
Of my work on FairPay, Thaler said "We seem to be on the same page." His behavioral economics is a key foundation for that work, a new approach to consumer commerce driven by continuing relationships based on cooperation that seeks fairness in pricing. I connected to Thaler about that in 2015, after I blogged about his column in the Times on The Power of Nudges, for Good and Bad" (http://bit.ly/2gn0Vg9).
1
I will come to the defense of entertainers who want even those in the front rows to be paying prices that are not astronomical. They want to look out and see real fans, not bored patrons sitting in those seats because they can, not because they want to. The effect of pricing true fans out of the front rows is readily apparent when watching major league baseball. In some markets, there's a wholesomeness behind home plate, with engaged fans rising and falling on every pitch. But in others, it's not hard to see that those behind the plate nabbed the day's company ticket - perpetually staring down at their smartphones and barely aware even with two men on base and the potential winning run at the plate. Not a fan in sight.
10
...Yes, and another aspect of this is that, for many if not most of the "big ticket" buyers, the cost is tax deductible as a "business expense", however questionable, and thus paid for by general taxpayers, many of whom are priced out of any competition.
6
The letters here are proving the headline is correct about surge pricing - it makes us mad. For there to be a sense of fairness, it is not just about the top price during high demand - there is a forecast element to it as well. If I plan my trip for what I think is low congestion, and then suddenly weather makes the prices high, that makes me mad too. I think people can deal with dynamic pricing if the price range is reasonable, and can be relatively assured of the cost in a given time frame. However, if I'm paying the cost, I probably don't want to be stuck in traffic either! We also expect value for the money.
1
Funny. Prices rarely come down when demand falls. I have a simple solution: I stop doing business with entities that insist on surge pricing, let them know it, and then proceed to let everyone I know to boycott.
11
Excellent article. However, the author could have used more domestic examples:
PG&E, the electric company that serves most of northern California, encourages people to sign up for a program that cuts your base rates during the year if an averageyou agree to pay more for electricity used during very hot days (2-7PM). You are sent an email 24 hours in advance that "tomorrow is a spare-the-air day". That's to encourage people (and businesses?) to cut back when people and businesses are running a/c at full blast. There is also tier pricing. The lst tier at 19 cents/kwh gives you enuf to run a very small home. 2nd tier at 27 cents/kwh gives an average home enough for many people. (Those of us in SF and Oakland don't usually have/need a/c)
And many areas in the country from Florida to California do have surge pricing on the roads and bridges. California also has free express lanes for cars carrying more than one person.
3
There are certain things as a society for which the market proves inefficient. These include healthcare, energy, education and defense. Maximizing profits in these businesses results in extreme unbalance between haves and have nots by furthering advantage to the wealthiest, who tend to be healthier and better educated. While the market might help micro-efficiencies in certain circumstances, such as motivating people not to waste energy, regulations are critical to ensure that society as a whole benefits, and not just a few at the top.
For entertainment such as concerts, in a perfect world it's the artist that should have the say. As this article correctly points out, the long term relationship between fans and artist is more important in maximizing performance value than just ticket price.
The fact that you can buy tickets online means there is no differentiation between fans willing to stand out in the rain overnight and those who are able to pay more. Soon only the wealthiest will be at concerts. Will that be more fun, or less?
8
The prices I pay for simple necessities have risen exponentially, and I would guess like most, the net income I bring home barely keeps up.
What angers me is that the activities I once enjoyed like going to a movie, eating dinner out, seeing Springsteen in concert are out of reach.
What's that old saying ?
"Working for the Man is keeping me down"
15
“If you treat people in a way they think is unfair, then it will come back and bite you,” Mr. Thaler said.
Standard supply and demand analysis, nothing more. Sellers set prices to maximize profits, not just in the short-term, but over longer terms as well. Short-term pricing practices that reduce future demand do not maximize profit over time. It's not about an attempt to be "fair" or to engage in some irrational activity; it's about maximizing profit over the long term.
7
The electricians, plumbers, contractors, and carpenters all have vital skills which demand a premium price after a disaster. No one seems to begrudge paying these people double or triple their normal wages in order to restore electricity or drinking water or other necessities. Why are individuals treated differently from commodities like generators, plywood, bottled water, etc?
Somewhat related is the pricing scheme of Thai restaurants. Evening meals which are identical in composition and size are priced 70-100% higher than the same meals offered at lunchtime. Why is that? (it's a rhetorical question, i already know the answer).
5
I'm mostly convinced that the large gap between concert face value prices and market-clearing/scalping prices must be indicative of corruption or fraud in the concert promotion business. It seems irrational that musicians who give concerts would give away large amounts of profit to third part sellers.
I suspect that there's some kind of shady deal involving large blocks of tickets released as "promotion and marketing" expenses and being taken as business write-offs, and these same tickets are flipped through scalpers for cash. The cash goes to promoters or others off the books in exchange for reduced fees.
9
Should professional service providers also engage in surge pricing? Should my doctor, lawyer, or accountant impose a surcharge on me if he or she is already very busy that week? What about the air-conditioning repair person charging more during a heat wave or a snow removal service charging more right after a paralyzing storm?
3
I think it goes back to the point of the article, going for the long-term relationship rather than the one-time buy. If my regular plumber charges me more to fix the AC during a heat wave, he's no longer my regular plumber.
I imagine if you walk in to your accountant April 1st and demand your taxes done by the 15th she's going to say "okay, but it will cost you."
I've paid my pool guy less to come on Monday than if he came on Friday. It's built into his price structure. Most people want their pools cleaned right before the weekend. He needs to even out the demand.
I've paid less to have my driveway plowed by 4 pm on the day after a storm rather than by 8 am or noon. Once again, he needs to even out the demand and does so by pricing.
Your co-pay is much higher for and Emergency Room visit than a regular office visit. Are you going to go in for a sore throat or wait until the morning?
All the things you mentioned are already happening. And they're regulated by the market.
4
The premium paid by the customer at a doctor's office during high demand times is not a higher price for the visit, but a longer wait. This market behavior is not new.
1
The professions you indicated do engage in "surge" pricing. The physician orders test, the surgeon prices on demand for the procedure. While you are recuperating in the hospital, a doctor you never saw before, sticks his head in the door, inquires how are you. You reply, "Fine"; a $500 consultant fee. The plumber doesn't show you a published labor/parts list. Lawyers, billable hours?!?! Some documents are fill in the blanks. A good para-legal can draft documents, an associate can do the research. That is why billable hours would appear the primary lawyer worked non-stop for you for three days and still manage to work for numerous other clients during the same time period and charge them the full rate.
When I use the Lincoln or Holland Tunnel, I have no choice when I have to be in the city. I have an appointment, I will be going home late when train schedules are only loosely based on reality. So I have to pay surge pricing for something I have no control over. I suggest that the toll lanes in place now include EZ Pass, Cash, and Guilty with an Explanation. This third option may be slightly more time consuming and would require 9 judges in the token booth to adjudicate the dispute, appointed by whichever Port Authority official is not currently in jail. Even though the drivers' explanations and protestations would likely cause minor traffic tie ups, the ensuing congestion would be no worse than what is waiting on the New York side.
10
Remember how awesome variable (adjustable) rate mortgages were when they helped crash the economy in 2008? Dynamic pricing should be treated with extreme caution, and never allowed where consumers are monopolistically tied to a single supplier. During the 1990s, the GAO performed numerous investigations of ARMs and found that that a whopping 25-50% of loans had made, ahem, "errors" in calculating the adjusted rate that resulted in overcharging the public. I put errors in quotes because you all will be shocked to know that nearly all so-called errors made favored the banks.
15
There are some needs that mean severe consequences if they are not met. Water and healthcare, at some level, fall into that category. So do the materials needed to respond to a disaster like a hurricane.
You can live without a ticket to Hamilton or a ride in the fast-lane around DC. There's a continuum between the essential and the discretionary. Of course, we think it's unfair to deprive poor people of the essentials, unless we are vulture capitalists.
There's an argument that gouging the price of something like water in a disaster zone is justified if it makes the difference between getting what's needed or not getting it. That may be when we should expect government to step in and decide where the boundaries ought to be for the general good.
You can expand that argument to include goods and services outside disaster zones. It doesn't have to be price controls; government could compete with the private sector for the important things. That idea of a public option could make a big difference.
11
Under-pricing - can we call it a charitable exercise? Debatable. Over-pricing can certainly be termed as profit-making,taking advantage of people's helplessness in certain situations. If local trains do not run due to heavy rains,taxis charge exorbitantly. In over-pricing,profit motive exists,but in under-pricing ,the major concern seems to be helping those who cannot afford. We can also accuse even governments of over-pricing,if they charge congestion charge to deter people from using their cars. It is unfair. Under-pricing as a subject,should be included in business management courses. it is an idea which needs to be exploited more,to help those who cannot pay for the things they need for their existence,as such items are unavoidable.
1
As a part-time cashier at Home Depot, and a being a 70 year old worker, I want to applaud my employer. I have seen "businesses", from Real Estate to non-profits scalp the public. This company is fair not only in the treatment of their customers (actually reminds employees that the customers are the ones who enable their jobs), but trains its workers and affords not only internal advancement but treats us with respect. One of the the things that stood out to me when I applied for a job with them was the number of people who had been at the company for more than 15 or 20 years, moving up through the ranks. I also remembered that when I bought my 1936 Craftsman Bungalow and spent $30K at Home Depot in supplies and tools to bring it into the 21st century, I left the store each time having had a good experience there. While the hurricane disasters we experienced this year may be good for HD business because of the nature of our products, the REAL benefit was the fast action that helped those who were in the path of the storm, and the volunteers who went to those locations to help.
24
In some industries-like printing-variable or surge pricing has been around for quite awhile. It is called "rush pricing". If a customer wanted a job completed in a shorter time then it normally took-he/she would pay two to three times the normal price. It was that simple and it was fair. It was fair because under normal circumstances you had to displace workers from one job to do the "rush job" and you needed to be compensated for that.
5
What's wrong with surge pricing? I'd rather be able to buy what I need for 1000 than running around trying to find something that's sold out for 100.
4
What's what's wrong is when you have a monopolistic or quasi-monopolistic situation involving a necessary good where there is no choice involved, then it can quickly become abusive. Think power prices in Australia, since that is where you are (as am I). Think bridges or tunnels that are the only way to access a majorl city, where the jobs are. Australia (Macquarie) is the master of insisting on excessive tolls for new infrastructure, which many people cannot afford. It is good to see that Transurban's effort in DC at least is voluntary -- you can choose to stay on the free highway with the traffic if you don't want to pay. But when new necessary infrastructure is forced down people's throats at unaffordable rates with no alternatives given, there is a problem. And don't forget that everybody benefits from this stuff, not just the people who are paying. If you get people to switch to toll roads, the people who choose to stay on the free road get less traffic. If you charge surge pricing for high speed internet access (relevant to Australia, with its slow/overclogged internet), then only rich people get decent internet access. That would not affect me personally, as I have all the money I need. But what about poorer kids who need the internet to complete their school projects? Better to tax everyone, which is what surge pricing effectively is. With basic services, there is an equity issue that must be considered, as this article rightfully recognizes.
7
"I'd rather pay $1,000? Good for you. What about those who don't have $1,000.
A month's pay that you're a Republican - we know you're conservative.
1
Didn't Enron use dynamic pricing? And created some artificial shortages which meant they could charge more and more. And we know where that ended up.
20
I would not trust some convoluted algorithm to compute how much I should pay each hour for electricity any more than I trust the airline industry to charge me a fair price for a plane ticket. Who’s going to enforce the integrity of such a price structure? It certainly won’t seem ‘fair’ to consumers!
18
I've read some other articles about Richard Thaler's work in the past few days and to this layman it sounds spot on. We consumers, who drive the economy, have an enormous number of considerations into each purchasing decision, many of which are non-monetary. Take purchasing potato chips for the family's dinner of burgers. First, decide on flavor, fat content, and assume brands are personally considered of equal quality. Then it is time to consider $$. One "Party Size" bag has a lower unit cost per ounce. It is in absolute terms only $0.50 more than the standard size bag. But I won't buy it. I will buy the "more expensive" (per unit) bag, in order not to have extra chips sitting around the house, that will be eaten by the family and negatively impact their health. Another example. I buy all my books at my new local independent bookshop, not Amazon. I pay full price for the books, sometimes up to $10.00 per book more than Amazon. But I LOVE going into this book shop. I can browse, get a cup of coffee, talk with the cashier about the latest books, run into my neighbors, etc. When my neighbor's garage caught fire two nights before Christmas last year, with ALL the kids presents hidden in there, the bookshop handed me a no-questions-asked gift card for $200 for the neighbors. It's even more than the "fairness" that Thaler speaks of. I think there is an aspect to our yearning to see some human decency in our financial transactions.
66
Once upon a time I learned in economics that the the value of an item is not the absolute cost but the utility of that time. That same concept was again discussed in decision theory - that the choice of an alternative is really based on utility X probability.
Today we have behavioural economics that no looks at apparent irrational behavior that is explained by drilling down to the utility of the choice.
I do not believe that behavioural economics explains surge pricing.
The concept is simple price gouging.
A better explanation of surge pricing is inventory modelling eg the newsboy's problem.
Demand fluctuates and one has to manage supply to meet demand. A restaurent meal is a question of choice. Electricity on a hot day and at dinner time is a need.
Either way the consumer is taken advantage of.
5
We may not be happy about true market prices (as most people seem unhappy about most things in the real world), but there are many hidden advantages to surge pricing.
Take gasoline at stations near hurricane regions. We get all upset when prices jump before a storm. But consider that higher prices discourage people from buying and hoarding gas, and running out the supply. And the potential for occasional higher prices may induce station owners to install extra holding capacity (and order extra supplies before a storm arrives). A final lesson: higher prices should teach us that we need to prepare as individuals, and perhaps gas up before the last minute.
11
I can assure you that the higher gas prices right before Irma hit Florida did not stop the gas hoarders. I witnessed it myself on multuple occasions over the days leading up to and after. Greedy hoarders and their red plastic containers needed to fuel their generators. And for what? To save the condiments?
1
The Nobel Committee made a mistake in awarding its Award to Professor Richard Thaler. Thaler is not respected by economists for careful empirical work on the way different markets work. His colleagues in the Department of Economics at the University of Chicago failed to tenure him in their Department.
His work is based on ad hoc speculations. In situations of limited supply of goods that are not easily substituted for, prices act to ration that supply. That is what happened in Puerto Rico recently, when people tried to fly out. It also occurs when there is little or no competition.
High prices also send a strong signal to producers to increase supply. It is more effective than self-imposed price controls.
Capitalism is not fair. It is efficient.
8
"Efficiency" is a corrupt concept.
It begs the quesstion of what system it is operating within.
The more important question is efficient for whom?
The answer under capaitalism is for those who can pay more.
The answer under a democratic socialist and egalitarian system would be efficiency according to need, and then for the greatest number.
1
This is not true - he was indeed given tenure in the department of economics at U Chicago
Sorry, but Thaler's work is not based on ad hoc speculations but on psychological research. He was hired by the Booth School of Business at Chicago from his tenured position at Cornell. I have no idea where you came to the conclusion about the Chicago Economics Department and tenure. He now holds the Walgreen Chair previously held by Robert Fogel and George Stigler, also Nobel Prize winners. This is not a position given to someone held in low esteem. So, I'm not sure that you have any grounds for claiming that his work is not respected by the economics profession. Sounds pretty ad hoc to me. And his work has proven to have legitimate applications. Behavioural Economics is an attempt to improve the field by making for better applications. Time will tell how much it has to offer.
2
Piicing fans out of the market is not going to help musicians' careers, particularly in an age where nobody under 40 is buying physical media. Artists like Springsteen, who came up hard, have always kept some ticket prices reasonable to maintain solidarity with a disadvantaged sector of their audiences. The paradigm proposed here would do away with that, and allow the manipulation of supply to guarantee that surge pricing always resulted in the highest margin for record companies and concert. If the last 40 years have shown us anything, it's that the former could go to the wall, along with record stores, with little impact on a large part of the market.
8
We use terms like "rational" and "irrational" as if they have some fixed, universally shared meaning. So when someone acts contrary to broadly shared expectations, we may think they are not rational when in truth they are just acting from a different set of principles, values and goals; a different perspective for judging.
There is no such thing as capital "R" Rational. No understanding of the term can possibly account for all of the different perspectives from which the assessment can be made. Springsteen is not acting out some "deeper rationality" or previously hidden yet fundamental principle of human action. He is just deciding what is rational from a different view point. His actions are as rational as any others.
We need to keep looking for the rationality in behaviors that seem strange to us. They are usually there, if we can get to the right vantage point.
6
Hey, here's a novel thought: didja ever stop to think that maybe the ever so wealthy Boss simply doesn't care about the money at this point of his illustrious career, and any calculations that he made had nothing to do with future benefits to him and that he actually cares about his less wealthy fans? I realize that it is difficult for mathematical calculations to wrap themselves around altruistic impulses, but perhaps the "wisdom" of the market place needs to include something beyond the idea of perceived fairness only for personal gain.
Interesting article, anyway.
46
Then why not give the shows for free?
1
Surge prices on necessities can harm many people - so we have things like Public Utility Commissions - - -
With ticket prices: the personal -why this is aggravating: I can't afford the tickets. And i can't even get close to getting in queue to buy them at official prices. It reminds me that we are in a two tier world.
But - there is a limited supply of performances possible --- performers aren't widgets.
And another take on Mrs Seinfeld's Uber charge is -- did she- and he - not go for the highest market price for their own services? Which is apparently OK for them -- but not for a lowly driver? Even the 1% like price controls on others.
It's complicated.
7
FYI, if you join a favourite artist's fan club, you will often get first dibs on tickets.
The last thing any concert promoter wants is an undersold venue. The have to leave money on the table. Otherwise, there is a loser stench that permeates unsold seats which would leave the sentiment that the artist is faltering in popularity. Thaler is brilliant to include human sentiment in economics- we are not purely rational actors otherwise everyone would run, wear sunscreen daily and not vote for Jill Stein or Trump.
14
Home Depot, nice move, and by stuffing the pipeline they prevent others from gouging also!
Is there perhaps such a thing as a good corporate citizen after all?
10
Yes and no. For one, they need to service their stricken customers at times like these more than at any other. Secondly, they need stores opened and employees working since many of those employees will have suffered financial losses related to the storm. Third, if they don't supply those needs, Lowe's and Ace and Tractor Supply and others will. Fourth, at least some of those increased costs are likely tax deductible. Fifth, those police escorted convoys likely received some measure of positive press in a number of markets.
5
If I may add a sixth to your list; having greater supplies of generators on hand in an area with an increased need of such a product will increase sales, and while people are shopping for generators, they may also pick up any other materials they may need to rebuild. Brilliant really. and the police escort was a nice touch.
Thaler is correct in one very important way, all economic transactions are personal. Two people meeting in a market to transact business will have built a relationship of trust. Just as lobbyists will have built a relationship of trust with a senator or a congressman in order to have legislation passed that suits their interest in return for some "political donations". There is no "invisible hand" in the "free markets", free markets don't really exist.
3
Easy: where the crowds stampede: don't. What else is there to say?
1
Ok Neil, so do Transurban toll roads cut down on congestion? This would have been a good question to ask.
2
Only initially. Then developers rush in to re-congest the area.
1
Another commenter reported that he canceled his Uber account because he didn't like Uber's "surge" pricing. I don't like it either, but why take the time to cancel your Uber account? Just keep the Uber account but call some other company that doesn't have surge pricing.
1
Because canceling your Uber account sends the message you want Uber to hear.
Why? Because if enough people who have been gouged by Uber's surge pricing were to cancel their accounts, Uber might take notice and stop surge pricing/gouging customers. Whereas if you just keep your account, they are not going to get the message.
"The goal is to create an experience that makes everyone leave with a warm glow, their fandom of that artist that much deeper."
+
Example of Home Depot's price freeze/supplies surge policy & practice
+
". . . coming out of era of rock & roll socialism"
= Maybe we're coming in to learning that a Bottom Line is not required to be money. Choose your own, oh Captains of Industry! It could be "a warm glow" & deeper fandom; long-term customer loyalty (And Bonus! A community not mired in wreckage long-term!); coming in to an understanding the blind anything -- including some electric-cool-aid fueled notion of Socialism is not a long term policy and plan for the Health and Vigor of a society, for a community.
2
Wish I'd proofed better: "understanding THAT blind socialism" and dash -- after the word "Socialism" is what should be there. Sigh.
Just think about a company like Apple that artificially creates faux demand and charges accordingly. All their products are subject to surge pricing all the time.
6
The strangest thing is that the "elites", including the economists and the entire political class, are STILL mystified about why the electorate is so angry.
21
People like me in their 50's despise demand surge pricing for things like concert tickets or sporting events because of that ingrained competitive urge we've grown up with that if you sat by your phone and radio all morning and could DIAL the ticket center faster than the next guy the minute the tickets were announced, then you had earned a rightful victory of getting those two precious seats in front of the stage. Surge pricing simply makes the whole experience another boring example of the rich getting what they want.
29
...and encouraging those in charge of ticket sales to manipulate supply to maximize profits, dropping prices only at the last minute of it looks like the venue won't sell out, which risks damaging the artist's brand. Good thing I prefer jazz clubs and concert halls these days, I guess...
2
I'd rather experience the egalitarian vibe of, say, a Grateful Dead concert than having to apply some cost benefit analysis to an expensive outing wondering whether I've felt, or had actually been, cheated or not...that is, if I could afford the outing in the first place.
11
If concert promoters believe that tickets are "underpriced" and that they should be charging exponentially higher prices based on demand, then surely those guys would have no objection to local governments charging exponentially more money to rent publicly-owned arenas and theaters for the shows based on the same market demand - right? Didn't think so.
71
Except they do. Many, if not most, venues charge a base rental fee against a percentage of total gate. The acts who perform at those venues also tend to charge a base fee to the promoter against a percentage of gate. Malls operate in the same manner with respect to the stores they rent to.
4
In the simple supply and demand picture, there is no connection between the price of a good and what it costs to produce, and I think it is this disconnect that offends our moral sensibilities. Morally, we want things to be priced at about what it costs to produce them, plus a reasonable (but not extortionate) profit. We accept price fluctuations when we can see how they reflect underlying costs, or are necessary to boost supply, within reason. But when supply is intrinsically limited, it's just profiteering, and that is what makes us angry. It feels like cheating.
40
had ID verification extended to the theatre entrance (i.e. you have to show ID that matches the purchase), the plan to stymie scalping would have worked. someone just didn't think through the execution.
12
Peak and off-peak pricing works for us. We generate electricity during the day with our PV system and sell it back to SCE at a higher rate during peak use hours. We buy it at a lower rate during off-peak hours. The bad days for us are when the sun is not shining.
On show tickets, we never did get to see Bette Midler because reasonably priced tickets were never available. Hamilton, ditto.
3
I wish that Hamilton, Springsteen and their ilk would raise their ticket prices, and then accordingly raise the salaries of the lowest-paid workers in their shows: the janitors, stage hands, concession stand employees, ticket collectors, etc. And then of course, as another reader commented here, New York and IRS would collect more taxes, which accrues to the general public's benefit.
33
Those low paid employees you mentioned work for the venue, not the band. The act has no control over their wages and benefits.
7
Those people work for the venues, not for the artists, and stage hands, lighting techs and others backstage are union members.
There is at least one way to fight back against surge pricing, as my son explained.
He sometimes goes onto Amazon's website, looks at a product he's interested in, but then doesn't buy it. Amazon duly notes his visit, of course, but concludes that he didn't buy because the price was too high.
Sure enough, he says, the same product will nearly always be offered to him a few days later (or even a few minutes later) at a lower price. Sometimes he does this several times, and the price drops each time. Not always, to be sure, and this won't work when you just have to have that product right now. But if you're not especially eager to get the product, my son's method may save you some money.
26
If Amazon filters the hit results by distinct IPs (I'm sure it can figure out how to deal with dynamic IPs), then it won't work. Though it will likely skew your ad results former.
1
How much money do the states and federal governments leave on the table?
By not charging a sales tax on StubHub sales the states leave money on the table. And the IRS doesn't collect capital gains tax on the sales either.
If you want to do away with scalping, start collecting taxes on the resellers.
71
The ticket is secondhand goods. That is usually not taxable in most states.
1
Try not paying a tax on a used car. Secondhand goods are often not taxed because the sale is not traceable, not because they are excluded from taxation. There should be taxes on secondhand sales on the profits made.
5
A ticket should not be considered "second hand goods" if it has not yet been used/redeemed for its intended purpose.
2
Nothing demonstrated the cluelessness of the discipline of economics than the award of a Nobel Prize for showing that people aren't strictly rational - a fact that is quite obvious to anyone who doesn't live in an economics ivory tower. Likewise the realization that the best decisions aren't always based on economic theory is perfectly obvious to people living outside that tower. I am troubled by the fact that economic reasoning plays far too big a role in too many important policy decisions. It is only one, often unreliable, factor to consider, not the only factor. Economists are unable to provide good answers to most questions. For my entire lifetime policy makers have debated the effects of raising the minimum wage, but economists are still unable to provide a clear answer.
By the way, you should credit the Grateful Dead for building an enormously successful, hugely popular business by consistently bucking the norms of the music industry half a century ago decades ago.
48
Economists knew that people were not strictly rational, just the way early physicists new that the mostly weren't dealing with perfect spheres in a vacuum. The problem was that that information was not usable. There was no way to incorporate the irrationality in models in the way that physicists and engineers can now account for friction in calculations. What Thaler and others like him did was figure out the predictable ways that people tend to be irrational so that it can be incorporated in models.
The assumption that academics are blind and that they're being stupid when they try to quantify the obvious is deeply unhelpful. It means that people doing very useful research get vilified as money wasters when in fact they're doing critical work. I imagine the people who worked out the ways to measure friction encountered the same sort of thing--people who laughed them and said, "Duh, of course there's friction. Physics is so clueless."
4
...and almost never leaving an audience feeling cheated.
We do see surge pricing when it comes to gasoline. What I don't like about it is that the prices go up immediately but don't come down immediately. Furthermore, I worry that we, as consumers, would be conned out of a lot more money for something that is not any better than what we're already paying for. In other words, I don't trust companies or our government to regulate prices properly. There are too many examples out there of corporations and our government officials abusing the law to scam us.
3
Prices are most fairly set for The People when done so by the Central Government. Other systems favor profit over People.
8
Price and wage controls have never worked and will never work. They completely violate every economic law in the book. And you may point to regulatory control over the pricing of things like electricity and insurance, but then also look at the disaster those industries are in.
Innovation occurs when government gets out of the way. Price "control" occurs via increased competition.
4
Sure. And the chronic shortages of food and consumer good in the Soviet Union were just capitalist propaganda.
1
"Confoundingly, he said, the same artist might chafe at discounting the back rows of an arena to ensure a sellout, for fear of appearing to give away tickets too cheaply."
This passage is really key and points out the heart of the problem with surge pricing. Companies only want to use it when it benefits them. If a plane is almost full the airline jacks up the ticket price, but if it is mostly empty they cancel the flight instead of reducing prices to fill the empty seats. Same thing with a hotel: almost full prices go up, half empty "everyday low price".
50
In the electricity market, the idea of surge pricing has been around for more than 35 years. Time-of-use pricing & load control were introduced to residential customers following the '79 oil crisis.
Georgia Power conducted the first real-time pricing trial a decade later. The TransText project featured 4 price tiers - 3 based on fixed schedules (ToU), while the highest tier was initiated in near-real time. Participants were given a set-top box that displayed price info on a TV (a pre-cursor to the world wide web). As I recall, the highest tier was 10x the lowest and was limited to 1% of the hours in a year. The set-top box allowed participants to determine which loads (AC, hot water, lights, etc) would be interrupted in response to price signals.
Technology has finally caught up with these aspirational, if not clumsy early trials. But utilities and regulators are still reticent to mandate dynamic pricing (in the residential sector) for the reasons portrayed in the article. Yet as long as these programs remain voluntary, participation will never be enough to make much difference in peak loads. As it turns out, opt-in programs typically attract customers who already have favorable load profiles!
One thing's clear: a recent trend for utilities to increase flat charges while reducing variable rates is not only regressive, but discourages customers from conserving energy or load shifting. This works against reducing dependence on expensive coal peaker plants.
2
The Coke machines where the price for each soda rises as does the outside air temperature seems to explain everything you’re talking about the best. No reason to beat around the bush with all the dynamic terms you’re using for extortion.
17
Why would you drink soda if its hot? It only dehydrates you.
1
Soda isn't dehydrating. "When it comes to caffeine, there’s a lot of misinformation about the diuretic impact of the drug. If you drink two liters of soda, you’ll hold on to most of it, but not as much as you would if you drank two liters of water,” says Dr. Douglas Casa, a kinesiology professor at the University of Connecticut and chief operating officer at the school's Korey Stringer Institute.
5
Where are those surge-price soda machines? I can't recall ever encountering one myself.
the profiteers always have the advantage, that is why it is so annoying. it's like tax reductions- they help the rich, or religious liberty- it allows fanatics and fools to impose their will on others.
22
Nice try butreligious liberty is not the problem. the problem is a Press owner and operated by a class of people who do not have the public interest at heart. They have elevated and promoted religiosity.
2
"So one view of the Springsteen approach is that it is economically irrational. But another is that it is part of a long-term relationship between a performer and his fans."
Please, few can afford a ticket to see Bruce on Broadway. All the economic theories and fancy words doesn't change this.
9
I wonder if Uber's decision to remove surge pricing in Mexico city after the recent earthquake had a negative impact on supply or created extremely long waits. A low price isn't very helpful if it means a delay of several hours before a pickup.
4
It is a marketing decision. Uber gives up some short-term profit in exchange for avoiding negative publicity. You can bet that angry tweets about surge pricing would get way more exposure than angry tweets about long waits.
4
But it's not about the profits, it's about the supply. When the demand surges, there might not be enough drivers, and as a result the wait grows dramatically. Consider how hard it is to get a cab when it starts raining -- the price stays the same, but there aren't any more drivers than there were before it started raining. But if the price surges, the amount drivers are paid increases, which should motivate more drivers to get on the road (at least that's the plan).
3
The prices are not fluctuating with "supply and demand". There is no such thing. A price is the cost of production and getting it to the point of sale + a percentage of that cost as profit. Reasonably that price is 10-15% over costs and no more. Any more than that the seller is profiteering.
They are fluctuating according to the greed of the profiteers controlling the prices.
56
So you are saying that government taxes on gasoline, many times the profit made per gallon by the entire chain in the industry, amounts to profiteering? How about property taxes on real estate which far exceed any annual increase in underlying price? What about progressive income tax brackets where government taxes more and more when you make more and more? Is that not profiteering by your definition?
3
This may be one of the silliest posts I've ever seen, and the fact that 22 people agree with it suggests the utter lack of understanding of economics in this country.
All I want is to see the deed restrictions of the 22 people who recommended this post that they will not sell their house for more than 15% over what they've spent on it.
I also want to see that all of these people work for businesses who will never charge more than 15% over their cost of all their products.
2
A short while after establishing an Uber account and getting hit with surge pricing, I stopped fuming and did the obvious: cancel my Uber account. Since then I am happily paying a bit more for the taxi. And I don't go to concerts that charge surge prices. My needs to consume are not desperate enough to override my sense of fairness.
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“We are still coming out of the era of rock ’n’ roll socialism,” he said. “I think the concert industry is still in a bit of head-in-the-sand economics.”
I'm so old, I remember when music was about.. the music.
Will someone please cast out the money-changers from the temples?
Sigh.
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The most recent example is th Hilton Hotel in Northern California that was charging $600/night because of the high demand from people left homeless by the fires. Meanwhile, Airbnb hosts were letting their rooms for free, in the true spirit of nomads and neighbors, one of the reasons frequent travelers like me love Airbnb.
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The residents of cities with a high percentage of Airbnb rentals don't find apartment shortages and rising rents caused by the withdrawal of units from the housing market for short-term rentals to be in "the true spirit of nomads and neighbors".
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methinks thou art white......and maybe not even a mouse, perchance! JK :-)
I am living in London just now.
Here the Brits appear to be congenitally averse to anything like scalpers, secondary market or dynamic pricing or anything priced for the market.
Forget the moral outrage.
They are totally against it to a point where the government has talked about banning stubhubs etc.
The soccer games for teams on lower rungs have plenty of empty seats but they will not allow a fan to sell his ticket if he wants to stay home - legally that is and in open.
Brits think that all this dynamic pricing is an American fannangdle to hoodwink customers and damage British sports.
Never mind that they allow gambling for as young as 21.
Luckily, the West End theater's have caught on. But they do not advertise. I go about 30 minutes before curtain time and can get a 90 pound ticket for about 40 pounds (yes,true)
You can never be too irrational in this world or is it rational?
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1. The issue with reselling soccer tickets has more to do with safety, making sure you know who's at the game and not banned fans or away supporters in the home end.
2. The British know well off-peak pricing. The over-62s can't use their bus pass until after 0930; there are people waiting outside the gates at Heathrow Underground for the same time.
3. If not 21, at what older age would you allow people to gamble?
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I may be naive but does this mean that those who can pay get the goods or service and those who can't do not get the goods or service. This sounds like surrival of those with the most money. I would hope that in a civilized society the govt. would freeze prices and suppliers would see the benift of the home depot approach. Their profit from sales remaines constant and they buy customer satisfaction.
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Controls like Home Depot's lead to empty shelves in socialist countries, but if you go around the side and pay a bit more, you can get what you want.
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"if you go around the side and pay a bit more, you can get what you want." Sure sounds like 'surge pricing' to me... the supply is there when the price goes higher. Of course, if there is a functional society, there might be a higher, altruistic 'societal good' that would cause some foolish capitalist tool of a company like Home Depot to consider that people who just got wiped out by a hurricane didn't deserve to have to pay the maximum top dollar possible to get a generator, or a few sheets of plywood to rebuild a roof for their family. No doubt that's "socialist" but perhaps some "socialist" concepts make for more liveable communities. Be sure you keep your shotgun handy when the next hurricane wipes out you and your neighbors, because people who can't get what they want at a price they can afford sometimes take direct action instead of respecting pure capitalist necessity.
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Very good article, valuable insight into the issues. Take it a techno level deeper. Why do some airlines raise prices between the first, second and third time one looks online at various destinations and travel dates? Has the demand really changed in ten minutes or have their algorithms revealed you really need to get somewhere and they can jack up the price? And how do I get all those super targeted Facebook ads as soon as I Google something?
Kudos to Home Depot for their recent actions in Florida. Surge pricing is a legitimate tool, but a sense of fairness is essential to letting the tool function in our society. If many sellers adopt the Springsteen, Home Depot approach as described in the article we will all benefit from a smoothing out of supply and demand. If too many take the low road, we all lose. And then there will be Congressional hearings.
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The joy of COOKIES. When you visit a website, that site deposits cookies in your browser that convey information about your visit, including what you looked at. When you visit the airline a second time, they already know you're interested in this or that flight and MAY charge a higher price. I generally throw out cookies from airlines or websites that I've visited in my planning stage so that I arrive as a "newcomer." That way I'm assured the vendor will not rip me off. You can accomplish the same thing by doing research on one browser and then make your purchase on a different browser. Cookies are browser specific. AND, those cookies are available to every other website, so if you searched for shoes on Shoebuy you can count on the fact Google and Facebook will show you shoes when you're at those websites. It could be considered a benefit, but may feel intrusive. If you don't like it, the best thing to do is throw out cookies... but don't throw them out for websites like the NYTimes where you have a password. Happy shopping!
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Dale Foreman "surge pricing" is NOT a legitimate tool. It isn't even a real thing. Its just an excuse using bad grammar created by a criminal enterprise to trick fools into overpaying for something they sell. Uber's very conception before finger ever hit keyboard was to be a criminal enterprise that skirted and deceived government regulations.
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Just use the incognito feature of your browser. No cookies are stored.
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You call surge pricing "more efficient". I call it "monetizing inequality in a monopolized economy". Plain and simple: surge pricing serves the top, not the bottom.
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The word you are looking for is PROFITEERING. It used to get people executed.
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Never ever buy in an auction. You will, if you win, always be paying the highest possible price instead of the lowest.
Not true, though it depends on the item in question. I collect stamps, a dying field. When I go to auctions I am often the only person there who has interest in the lots containing postage stamps. With no competition on the demand side, I pay next to nothing for the lots I purchase. If I were to try and get the same thing at an estate sale or retail shop where the pricing is set (and only marginally negotiable,) I would pay much more, much closer to actual book value for the items.
The converse holds true for sellers of items at auction when demand is high. Prices go up according to what people are willing to pay for an item. So are you day saying that we should never have auctions because sellers "take advantage" of buyers?
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What if the variable pricing is hidden? For on-line shopping for consumer goods, airline tickets, hotels, etc. one never knows if the the price one sees if the same price someone else sees.
With the vast accumulation of personal data that large on-line platforms have, they can tailor pricing to people who never know that the price is being tailored. I'm looking at you, Amazon.
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An item's nominal value is determined what a buyer is willing to pay at the time of the transaction. An item's TRUE value is determined by what a collective of educated buyers are willing to pay.
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