Dynamic Pricing Explanation

Dynamic Pricing

Dynamic pricing is a form of pricing where the parties to a sale contract ascertain the price when the actual transaction is taking place. In this case, the price is not fixed in advance, but instead, it is flexible. Dynamic pricing has been applied in various markets where negotiation or bidding takes place before a contract of sale is made. These markets include real estate, security markets, and online markets such as eBay.

The internet has encouraged dynamic pricing by enabling online auctions. In these forms of auctions, sellers post their items on a website that may belong to the seller or to a third party, such as Amazon.com or eBay. Buyers who visit these websites are able to bid on the items posted. The seller will, of course, sell his or her item to the highest bidder. Marketers will use the internet for auctions either by selling their own items or by acting as intermediaries between sellers and buyers.

Using the Internet for Price Discrimination

The internet can be used for price discrimination by charging product prices according to the level of consumer traffic. This means that when consumer traffic to a company’s website is high, prices adjust upwards. On the other hand, when consumer traffic is low, prices adjust downwards. This form of price discrimination has already found application in the airline and hotel industry around the world.

Advantages of the Internet for Consumers

The internet offers several advantages for consumers. The most important advantage that consumers derive from this form of marketing is variety. In online markets, consumers are able to explore items from very many sellers and compare their prices, something that would not be possible in physical markets. Another significant benefit for consumers is that online markets enable them to save on search costs which are usually considerable.