The Efficient Queue and the Case Against Dynamic Pricing

45 Pages Posted: 23 Aug 2018

See all articles by Ramsi Woodcock

Ramsi Woodcock

University of Kentucky College of Law

Date Written: August 13, 2018

Abstract

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

Woodcock, Ramsi, The Efficient Queue and the Case Against Dynamic Pricing (August 13, 2018). Available at SSRN: https://ssrn.com/abstract=3230425 or http://dx.doi.org/10.2139/ssrn.3230425

Ramsi Woodcock (Contact Author)

University of Kentucky College of Law ( email )

620 S. Limestone Street
Lexington, KY 40506-0048
United States

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