How dynamic pricing drilling a bigger hole in customers pockets
In a crisis situation, like in Ukraine, airlines hiked fight ticket prices as a result of which many students couldn’t come back in time
Former Chief Minister and senior political leader, Omar Abdullah tweeted on Feb 23: "This is how passengers to Srinagar are getting shafted by airlines - all flights got cancelled today & people who had paid Rs 3000 to Rs 4000 for their seats are told to rebook. Suddenly the same flights are being quoted at Rs12,000 to Rs14,000. Day light robbery & no government intervenes." This was on a day when 41 scheduled flight to and from Srinagar got cancelled because of poor visibility. A better description for the exploitation by way of fleecing the consumers with exorbitantly high prices (taking advantage of the critical situation that one is struck in) perhaps came from William Shakespeare, who had several centuries ago termed it figuratively as "pound of flesh".
Before we examine the similarities, let's first see how the airlines played a questionable role and that too more recently. It happened in February when Indian students in Ukraine, fearing the Russian invasion to happen anytime, wanted to return back. That was before the war began. They were left high and dry confronted with zooming air ticket prices. "From Rs 40,000 earlier, the prices of a ticket to Hyderabad or Mumbai from Boryspil International Airport, 26 km from Ukrainian capital Kyiv, have shot up to Rs 1 lakh to Rs 2 lakh due to the unexpected surge in demand, screamed The New Indian Express in its Feb 23 edition. Chhattisgarh Chief Minister Bhupesh Baghel later said that even Air India had raised the ticket prices from Rs 24,000-Rs 25,000 to Rs 60,000-Rs 65,000 as a result of which many students couldn't come back in time.
Call it a 'daylight robbery' as Omar Abdullah aptly describes it, the concept of dynamic pricing, as it is called, is nothing short of open loot. In a crisis situation, like in Ukraine, airlines should have been more humanitarian in approach and refrained from jacking up the prices. After all, the aim should be to save as many human lives as possible. Even if a few hundred students had come back in time before the war broke out, they would have not only escaped the ordeal, trauma, and humiliation they went through subsequently, it would have been a big relief for their parents as well as less challenging for the government to bring back those who had stayed back. In any case, it was a question of life and death for the students struck in Ukraine.
Even earlier, there have been cases when airlines have raised ticket prices many fold at times of natural disasters when people are stranded because of sudden floods and landslides. Well, we all know what Omar Abdullah realised on that particular day is being experienced by the ordinary people every other day. I have myself paid exorbitantly high ticket prices a few times when my scheduled flight had suddenly got cancelled. So have many others. But it was certainly disappointing to see that the high prices the airlines wanted to charge at a time when war clouds were getting darker in Ukraine did not evoke any kind of public outrage.
The economic concept of dynamic pricing is not a recent phenomenon. Policy makers themselves have been encouraging it. While the ordinary consumers feel the pinch, the illogical concept is not only confided to airline ticket prices but has been further expanded to include railways, taxis, hotels and even cinema tickets. According to Wikipedia: "Dynamic pricing, also referred to as surge pricing, demand pricing, or time-based pricing is a pricing strategy in which businesses set flexible prices for products or services based on current market demands. Businesses are able to change prices based on algorithms that take into account competitor pricing, supply and demand, and other external factors in the market."
Let's now return to Shakespeare. In Merchant of Venice, Shakespeare had created a character called Shylock, the money-lender, quoted as saying something like this: "Someone demanding their pound of flesh is saying that they are determined to get what is theirs by right, no matter how it may affect anyone else and regardless of the consequences." Corporate economists may deny the similarity, but this is what dynamic pricing or surge pricing is all about. When a consumer is left with a Hobson's choice, extract your 'pound of flesh.' I find McKinsey even going to the extent of saying that dynamic pricing can be designed to happen multiple times a day. Shakespeare didn't know how algorithms would work in a computerized world in future or else I am sure he would have eloquently sketched it in the role Shylock plays.
I don't know why my generation, which read Shakespeare with a lot of interest, always treated Shylock as a villain of the story. By all reckoning, he was perhaps much ahead of his times. In today's world, he would have been treated with a lot of respect, probably placed as a chief strategist of a global management consulting firm. Imagine sitting in a cab, and when you get down, the tariff you are asked to shell out has gone up. Even as early as 6 in the morning, on way to Chandigarh railway station, I have often paid a surge price. Now imagine, the vegetable hawker who does multiple rounds in a residential colony during the day, raising veggie prices a number of times (as McKinsey had suggested). Moreover, why is it that when taxi prices are raised at will, consumers readily pay calling it a surge price? It isn't even called inflation, but when tomato or onion prices go up hell breaks loose on the TV channels asking the government to reign in rising inflation. This often leaves me wondering why food inflation is not called surge pricing.
This is how a wrong narrative is drilled into our thinking, building an economic rationale that actually drills a bigger hole in our pockets. Dynamic pricing or surge pricing actually is a very convenient way to transfer money from the pocket of gullible consumers to corporate bank accounts. The transfer that takes place adds to inflation, as well as adds to growing inequalities. The dynamic pricing is in addition to unbundling of ticket prices by airlines for example where customers have to pay for the number of bags they carry, and the choice of seat they prefer. At this rate, the day is not far when travellers will have to pay if they want to use the toilets.
Despite claims, there is no plausible justification for dynamic pricing or surge pricing. It is nothing but corporate greed that is being cleverly marketed using high sounding economic vocabulary. This daylight robbery or what I call as loot economics has to stop. The time has come to revert back to the days of fixed prices, which in any case incorporates a sizeable percentage of profits for companies.
(The author is a noted food policy analyst and an expert on issues related to the agriculture sector. He writes on food, agriculture and hunger)