from Large supermarkets and grocery stores To Airlines“Dynamic Pricing“Online shopping,” where prices change in real time according to supply and demand, will become a bigger part of Americans’ shopping experience.
As companies use artificial intelligence to increase their computing power, we’ll likely see more price fluctuations at local stores and restaurants. But as Wendy’s saw a few months ago when it announced plans to raise menu prices during peak hours, there could be customer backlash. Sometimes it’s intense.
That’s one reason why the potential for AI to enable full-blown dynamic pricing has drawn attention from policymakers and regulators. Last week, the Justice Department’s top antitrust official said: Warned Using AI to set prices could be considered “price fixing” and raise antitrust concerns.
But for those of us who care about sustainability and an inclusive economy, more dynamic pricing in our daily lives should actually be cause for excitement.
Currently, most businesses set fixed prices for everyday items. For example, grocery stores carry excess inventory to accommodate fluctuations in demand. As a result, customers make items available at a fixed price throughout the day and may pay a slightly higher price (a “premium”) for each item to cover the cost of unsold perishable goods. Grocery stores have traditionally found it more profitable to let prices fluctuate based on supply and demand to avoid surprising consumers.
This flat-rate pricing method comes at a cost. Grocery stores produce a lot of food waste because consumers are reluctant to buy expired produce and other products. Shelves can be bare when demand is high, such as right before a hurricane or snowstorm. Checkout lines are often long when shoppers stop by during rush hour.
Imagine what would happen if grocery stores and restaurants set food prices in the same way that airlines set fares. Airlines may not be the most popular business model overall, but their adoption of dynamic pricing has allowed many people to get cheap flights and even travel around the world by booking in advance during months of low demand. This strategy fills empty seats, optimizes travel schedules, reduces carbon emissions per passenger, and saves money for those who plan early.
Similarly, pricing algorithms at restaurants and grocery stores can identify times of low demand or foods close to their expiration date and assign them lower prices, making it more affordable for more people to buy food or eat out.
This is not a new concept – consider some innovative tools such as: Too good to gotakes advantage of times when demand is low for restaurant food and fresh produce in grocery stores, and has become especially popular in cities like: Direct currentyoung people are living alone in demanding jobs in expensive areas and looking for quick, affordable meals.
In fact, new research provides evidence of this very phenomenon. study Dynamic pricing discounts were found to encourage consumers to buy older products, in part because such pricing discourages consumers from searching for fresh products. The study concluded that dynamic pricing and shelf rotation could reduce food waste by as much as 30%, which is consistent with other studies. study They simulated dynamic pricing and found it could reduce food waste by 21 percent.
So while some of the concern around dynamic pricing is understandable (no one wants to pay $20 for a gallon of milk), it’s easy to forget that prices can go up and they can go down. Even better, when you add it all up, efficiency gains tend to mean lower prices overall.
Environmentalists and people concerned about food waste should embrace this change, as should those who love bargains.
Liya Paragashvili He is a senior research fellow at the Marketas Center at George Mason University. chapter She discusses dynamic pricing in “Price Wars: How Common Misconceptions About Inflation, Prices, and Value Lead to Bad Policy.” Levana Shalfadin is a Pre-Doctoral Research Fellow at Marketas.
