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Why Prices Are Sharply Increasing in Restaurants, Online Stores, and More

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Dynamic pricing, once reserved for the travel industry, is now spreading. Consumers should expect to start paying premiums during periods of high demand.

Whether it's a Friday evening flight, a hotel stay during the holidays, or taking a taxi in the rain, we've all experienced higher-than-usual prices due to excess demand. For example, price surges during peak hours are common in the entire tourism industry, but now consumers are beginning to see this "sharp price increase" in many sectors.

In the UK, the Stonegate Group, which owns the nationwide chain of pubs and bars Slug & Lettuce, announced that it will start charging higher prices for beer during peak hours. This trend is spreading. An October survey of over 2,000 British consumers conducted by Barclays showed that 47% of Britons noticed instances of sharp price increases, while 32% noticed price hikes for food and drinks at pubs and bars during peak hours.

The concept of dynamic pricing is straightforward and easy for businesses to implement. "Sharp pricing is directly related to increased demand. During periods of high demand, scarce goods become more valuable, and companies can raise their prices," says Arnd Fomberg, a professor of digital marketing and marketing transformation at Mannheim Business School in Germany.

Perhaps the most well-known example of this is ride-sharing companies, including Uber and Lyft, which have used surge pricing for years to charge passengers more when demand for rides sharply exceeds the number of available drivers. However, while these companies have become synonymous with the concept of surge pricing, it's not new: airlines have been using this business model since the 1980s, and more recently, websites like TripAdvisor, Skyscanner, and Airbnb have adopted it.

According to Fomberg, beyond travel, online retailers are increasingly using dynamic pricing. "On Amazon.com alone, millions of price changes occur throughout the day, equating to a price change roughly every ten minutes for each product." He adds that price changes not only happen frequently but can also be substantial. He cites a 2016 study that showed the price of a Nikon camera on Amazon changed from €700 to €1,687 in just a few hours—a difference of €987, or 240%.

While consumers may not always notice these price changes, Fomberg says that time-based dynamic pricing is likely to become a competitive standard, at least in online markets. He explains that this is largely due to the development of algorithms that naturally embed this approach into business models. "AI-supported tools can rely on inventory levels or determine optimal prices using machine learning algorithms. They can also track and analyze competitors' and customers' reactions to price changes," he says.