The Efficient Queue and the Case Against Dynamic Pricing
45 Pages Posted: 23 Aug 2018 Last revised: 23 May 2019
Date Written: August 13, 2018
From surge pricing by Uber, to last-minute fare hikes by airlines, to paid fast lanes on highways, the use of price hikes to determine who should gain access to scarce resources has swept the business world in recent years, enabled by the easy access to information on what consumers are willing to pay, and the power of algorithms to act on that information, that characterize the information age. This practice, often euphemistically called dynamic pricing, has been defended on the ground that higher prices are required to equilibrate supply and demand. Lower prices, the argument goes, would lead to wasteful queuing. In fact, the same technological advances that have enabled dynamic pricing have also driven the cost of queuing nearly to zero, by allowing consumers to place orders online, which amounts to standing on instantaneously self-clearing queues. Firms engage in dynamic pricing not because the practice is better at rationing access to scarce resources, but because charging higher prices is more profitable. This in turn makes dynamic pricing of concern to a number of legal regimes charged with protecting the welfare of consumers, particularly antitrust law, which can respond by treating dynamic pricing as a form of monopolization prohibited by Section 2 of the Sherman Act.
Keywords: Antitrust, Monopolization, Dynamic Pricing, Consumer Welfare, Sherman Act, Algorithms, Rationing, Technology, Economic Rent
JEL Classification: D18, D45, D49, L41
Suggested Citation: Suggested Citation