Price changes naturally occur in a competitive, free-market economy, as in the United States. Prices are the mechanism for allocating scarce resources, and they change constantly to reflect shifts in supply and demand.
The term “dynamic pricing,” as used in today’s sophisticated world, refers to the automatic, continuous adjustment of prices to reflect changes in conditions in real time. This can be the best friend for consumers and businesses.
Consider a grocery store and how it operates. When products are perishable, the grocer may end up disposing of unsold products at the end of the day. To clear out the products, the grocer may lower prices instead of throwing inventory away. The business benefits by realizing value from an otherwise wasted product, and consumers benefit from a lower price.
Similarly, an empty airline seat is instantly worthless when the plane leaves. The airline uses pricing to maximize revenue by filling empty seats at off-peak times and increasing prices during high-demand periods. Consumers can manage their costs based on their flexibility in timing their flights. If they must go at peak hours, they pay the price; if they are flexible, they can shop for the best prices.
Sometimes a dramatic upward price change can irritate consumers. An airline ticket that costs $500 today may cost $1,000 tomorrow (or vice versa). A taxi ride that usually costs $20 may cost twice as much during a storm or after a concert. A hotel room that was affordable last week may suddenly be out of reach this weekend.