The Efficient Queue and the Case Against Dynamic Pricing
43 Pages Posted: 23 Aug 2018 Last revised: 2 Jun 2020
Date Written: August 13, 2018
From surge pricing by Uber to last-minute fare increases by airlines, 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. Today, 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. Antitrust enforcers do not normally prosecute the charging of high prices, but they have an opportunity to do so here, because the harmfulness of dynamic pricing to consumers is clear and the remedy—prohibiting dynamic pricing—would be relatively easy to administer.
Keywords: Antitrust, Monopolization, Dynamic Pricing, Consumer Welfare, Sherman Act, Algorithms, Rationing, Technology, Economic Rent
JEL Classification: D18, D45, D49, L41
Suggested Citation: Suggested Citation