Price discrimination online | Livemint

Today’s online marketplaces focus on demand, and when demand peaks, use a mechanism called ‘surge pricing’ to price-discriminate among potential customers. The new algorithm I spoke of last week would also consider the supply-side of the equation, as well as how perishable the traded items are, and allow suppliers to bid against each other when trading in perishable commodities, for instance, rush hour rides, or phone models that are facing imminent obsolescence. A portion of the savings would then pass on to the consumer.

This week, I shall try to present the rationale that Bill Gurley, an investor in and board member of Uber, came up with some years ago, which he published on his blog abovethecrowd.

This post was written when Uber first began to use the surge pricing mechanism. At the time, Gurley raised several points to defend the strategy Uber had moved to with this pricing model, since the strategy had caused angst among customers and traditional competitors such as licensed cab drivers, and had led to increased governmental scrutiny around the globe.

In my opinion, Gurley’s analysis deviates from current experience, and hence helps build the case that I started last week—that a firm with the algorithms to upend dynamic pricing by online marketplaces might be the next ‘disruptor’.

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Price discrimination online – Livemint.