Online Dynamic Pricing : Efficiency , Equity and the Future of E-commerce

1. Customers of Amazon.com, the behemoth e-commerce retailer, were recently startled and quite upset when they learned that the online mega-store was charging different customers different prices for the same DVD movies.[1] Amazon, it appears, was engaging in a form of “dynamic pricing” – an innovative pricing mechanism made possible by recent advances in information technology. By using the plethora of information gathered from customers – ranging from where they live to what they buy to how much they have spent on past purchases – dynamic pricing allows online companies to adjust the prices of identical goods to correspond to a customer’s willingness to pay. Although Amazon later denied that it was dynamically pricing its DVDs, explaining instead that the price variations were part of a random “price test,” many customers were left unconvinced.[2] Amazon and other e-commerce retailers are not the only businesses applying new technologies to pricing systems. Even one of America’s best known brick-and-mortar companies, Coca-Cola, was reported to have been recently testing vending machines that adjust the prices of soft drinks according to the surrounding temperature.[3] If industry analysts are correct, dynamic pricing is not just a passing phase, but will soon be a vital part of all commerce in the twenty-first century.[4]