Dynamic Pricing Rankles Some, but it is Just Supply and Demand

SideCar, a peer-to-peer instant ride-sharing app, plans to double its suggested donations for drivers on New Year’s Eve, effectively instituting “surge pricing.”

Uber, a similar service, used dynamic pricing in 2011, on New Year's Eve. The practice will bother some, but in principle it is simply a way of matching supply and demand. Some will say it borders on price gouging, or is, in fact, price gouging.

It's hard to say where the boundary between "gouging" (with its implication that a supplier is taking unfair advantage of buyers) and "supply and demand" (the price of a scarce commodity will rise when demand rises and supply is fixed) lies, but supply and demand fluctuations are a reason why prices for virtually any product tend to shift up or down.

Communications service providers tend not to have such flexibility, in part because regulators will only tolerate so much fluctuation, in part because users tend to prefer fixed and known pricing, even when their usage might vary, and in part because the ability to dynamically price communications products at the retail level is not always possible (rating systems or billing systems might not be able to do so).

Up to this point, service providers have used a simpler "differentiated" pricing scheme, the perhaps-classic example being pricing of voice calls on mobile phones. International calling is most expensive, domestic calling tends to be modestly priced while calling during off-peak periods (evenings and weekends) can be nearly or virtually "free."

Some might suggest that "congestion" pricing (bandwidth becomes more expensive at times of high demand) is a similarly beneficial way to match supply and demand on broadband access networks.

"Value" pricing is another concept that incorporates supply and demand dynamics, but also seems to provoke opposition from some who think it is another form of gouging.

Any number of observers have speculated or argued for "innovative" pricing models for broadband access services, with some arguing for  "value-based" pricing. Some might argue mobile service providers are using Long Term Evolution to shift in that direction.

Based on a survey of 65 mobile operators offering LTE services, about half "have used the deployment of LTE as an opportunity to introduce a new form of pricing for mobile broadband services."

The new strategy, which supersedes the earlier unlimited data model, uses download/upload speeds as well as data allowances to differentiate on price, says Wireless Intelligence.

The speed-based tariffs are most common in Europe, where 90 percent of mobile service providers surveyed offer them. These tariffs are less popular across the Middle East, Asia Pacific and Africa, and least prevalent in North America and Latin America.

That’s a step in the direction of using tariffs that match service features in a more-differentiated way, even if not such a major step towards dynamic pricing.