Q Does dynamic pricing increase efficiency?
A Dynamic pricing has caught the attention of many Singaporeans as digital technology continues to disrupt traditional industries.
Consider the taxi industry. With the recent announcement by ride-hailing app provider Grab to offer taxi fares that vary throughout the day, it is timely to consider whether dynamic pricing is able to increase efficiency.
By charging different prices in real time, dynamic pricing seeks to address the mismatch between demand for and supply of goods and services continuously. It is made possible by technological developments. The proliferation of smartphones and big data means that consumers and producers now know more about each other.
Consumers have instant access to prices across different markets and producers have access to the unique tastes and preferences of individual customers.
Looking forward, as producers are able to implement price changes and gather data effortlessly, we would expect more industries to experiment with dynamic pricing.
However, it is uncertain whether this would lead to an optimal outcome in the long run.
Proponents of dynamic pricing argue that by charging different prices throughout the day, there would be an increase in efficiency. This allows producers to distribute scarce resources to a socially optimal level, keeping wastage to a minimal.
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