People hate dynamic pricing. But should they?

Dynamic pricing involves varying prices to reflect changing market conditions. It hit the headlines last year when tickets for the Oasis reunion tour went on sale. Fans waited for hours in a digital queue to secure tickets at £135, only to find the price had almost tripled by the time they reached the checkout.

After an investigation by the Competition and Markets Authority, Ticketmaster confirmed that it used tiered pricing. There was a set number of standard tickets which sold out quickly, leaving only “platinum” tickets with a pre-set price of £355.

This tiered pricing model is different to moment-to-moment surge pricing, where prices increase with demand in real time. This is most commonly associated with Uber, who increase taxi fares when it rains. Whether it’s Ticketmaster or Uber, emotions run high. It feels like big companies are taking advantage of consumers. 

Prices are about fairness and power 

People don’t just respond to market prices as rational economic agents. Research in behavioural science suggests that people are guided by a shared sense of fairness and justice in pricing, especially for essential goods. Prices that shoot up due to demand (e.g. increasing the cost of snow shovels in a cold snap) infuriate us. They feel unfair. 

The surge makes the headlines, but the discount fills the room 

Richard Howell, a veteran of the ticketing industry, revealed on the Bottom Line podcast that in his 25 year career, the vast majority of dynamic pricing changes he observed were discounts.

Event tickets are perishable goods: if they aren’t sold by the time the curtain rises, they’re worthless. To prevent this waste, promoters use discounts (“dynamic adjustments”) to find the “truth” of the market. Think of the ticket booths in Leicester Square offering same day theatre seats for half price, for example.

When it comes to concert tours, many artists use pre-sales to ensure loyal fans get access at preferential rates. This makes sense ethically and commercially. Seen through the lens of customer lifetime value, a discount to a longstanding fan is an investment in a long-term relationship.

The same principle applies to many conferences in the B2B world: early bird discounts are a common strategy for people who are organised enough to book in advance. 

Introducing “plunge pricing”

In the energy sector, supply can occasionally outstrip demand when a windy or sunny day leads to lots of renewable energy being produced. Octopus Energy for Business offers plunge pricing.

During “plunge events”, when the grid is overflowing with green energy, prices can actually turn negative. In these moments, customers are paid to use electricity and incentivised to charge EVs or run industrial machinery to relieve the grid. It is a win-win for the environment and the wallet.

Do we benefit from dynamic pricing more than we recognise?

When it comes to pricing, you have to tease apart facts from feelings. Few complain about picking up a pizza at half price in the supermarket on its expiry date, or about getting 2-for-1 cocktails at happy hour. You know what you’re getting and why you’re getting it. There are established norms in play. 

Managing demand feels appropriate in some categories, but less so in others. Energy: yes. A once-in-a-lifetime chance to see your favourite artist in concert: no. The former is rational; the latter is emotive, bound up with identity… with an added sprinkling of animosity towards large corporations on top.

To level the playing field, the CMAs now require Ticketmaster to tell people in advance if they’re using tiered pricing and provide more information about ticket prices during online queues, so fans know what to expect. 

Only time will tell if transparency is enough to make concert ticketing feel fair. As long as there is an imbalance of supply and demand, not all fans will be happy.