AI Might Enable More "Surge Pricing"

Surge pricing--dynamic pricing used when demand for a service spikes well above normal--seems virtually certain to become more common as artificial intelligence allows suppliers to adjust real-time prices to balance supply and demand.

Most of us seem most familiar with the concept as applied to prices for ridesharing services during rush hour, or at times of inclement weather, when demand for rides exceeds the supply of drivers and vehicles. In principle, surge pricing works by reducing rider demand by temporary price boosts, while providing incentives for additional drivers and vehicles. 

Older examples of dynamic pricing--though not “surge” pricing--are airline ticket prices closer to time of departure or concert tickets closer to time of performance.  

Consumers might not be too happy about surge pricing as applied to other products, such as restaurant meals, for example. Perhaps the biggest objection with surge pricing is the feeling of being exploited. 

Lack of transparency also can be an issue. Consumers may feel like they're being charged arbitrarily, without understanding the justification.

Humans seem to have a strong sense of fairness. When prices jump significantly for the same service with no perceived change in quality, it feels unfair, regardless of economic justifications.

Also, people are more sensitive to losses than gains. So a $20 surge on a ride feels like a bigger deal than a $20 discount feels good.

Surge pricing can disconnect the perceived value of a service from its actual value. If a ride during rush hour feels no different than a regular ride, paying extra can feel unjustified. But “value” might be “I make my flight” rather than “I get to the airport.” 

But it might be reasonable to note that people dislike pierce uncertainty in general. It is not just “what am I paying” but also “what are others paying?” Without fixed pricing, one might always be concerned that others are paying less. 

Still, we are likely to see much more surge pricing as AI enables it as a way of balancing supply and demand. How it is practiced, how policies are communicated and explained will help reduce possible consumer frustration. 

As with restaurant reservations, people might accept the choices of “be seated now, or in two hours,” even when different prices for meal items, or surcharges, are required for the former; not for the latter. 

It then is simply an extension of the decisions all of us make all the time about what to buy, and under what circumstances. 

Industry	Products/Services	Example Companies	Factors Influencing Price
Transportation	* Flights * Ride-sharing * Train tickets	Airlines (e.g., United Airlines), Ride-hailing apps (e.g., Uber, Lyft), Rail companies (e.g., Amtrak)	* Time of booking * Demand (peak hours, holidays) * Weather conditions * Competition * Available seats/cars
Vacation Rentals	* Vacation homes * Apartments	Rental platforms (e.g., Airbnb, VRBO)	* Seasonality * Events in the area * Number of guests * Booking lead time * Local rental market
Lodging	* Hotel rooms	Hotel chains (e.g., Marriott, Hilton), Independent hotels	* Day of the week * Events in the city * Occupancy rate * Competitor pricing * Room type
Entertainment	* Concert tickets * Sporting event tickets * Movie tickets	Ticketing platforms (e.g., Ticketmaster), Movie theaters	* Artist/Team popularity * Seat location * Demand (closeness to event) * Competitor pricing * Weekday vs. weekend
Electricity & Energy	* Utility bills	Utility companies	* Time of day (peak vs. off-peak) * Season (higher demand in summer/winter) * Customer usage patterns * Government regulations
Communications	* Mobile phone data plans	Mobile phone carriers	* Data usage * Customer plan type * Promotional offers * Competitor pricing