Dynamic pricing
Also called: Surge pricing, Demand-based pricing · Topic: Markets, Equilibrium and Government Intervention · NCERT: Class 9, Ch 9 "The Price Puzzle: What Drives the Market"
Meaning
Dynamic pricing means a seller changes its price often, depending on demand, season, events and time left before use. Prices may change several times a day. It shows that real-world equilibrium is never fixed. Demand and supply keep shifting, so the market price keeps moving towards a new equilibrium. Surge pricing by ride-hailing apps is one type of dynamic pricing.
Example
A 100-room hotel in Goa charges ₹1,500 on a Monday in July (off-season), ₹8,000 on a December Saturday and ₹25,000 on New Year's Eve. It may cut rates by 40% overnight if a group booking is cancelled. Airline fares and time-of-day electricity tariffs work the same way.
Don't confuse with
- Price discrimination: charging different buyers different prices for the same good at the same time. Dynamic pricing changes the price for everyone over time as demand changes.
Related concepts
- Effect of demand shift on equilibrium
- Effect of supply shift on equilibrium
- Simultaneous shifts of demand and supply