Dynamic pricing: How does surge pricing work and which companies use it?

Last month, Ticketmaster and Oasis faced backlash after some fans (who had waited in a virtual queue for hours) discovered that tickets to the band’s reunion tour were far more expensive than expected.

Ticketmaster’s use of dynamic pricing – where prices increase when demand is high – resulted in some “in-demand” tickets rising from the advertised £148.50 to over £300 each. Fans had not been warned about this and were understandably outraged.

But while Oasis ticket sales have caused controversy, Ticketmaster isn’t the only company taking advantage of price hikes. A growing number of organizations from surprisingly diverse industries have adopted similar models in recent years. Whether you book an Uber car during rush hour or visit your local pub on the weekend, higher prices may apply during busier times.

Here, which one? reveals where else you might come across dynamic pricing, when it violates consumer law, and whether it’s ever good news for consumers.

What is Dynamic Pricing?

Dynamic pricing refers to companies that adjust their prices based on demand.

This essentially means you may pay more during busier times and less when demand slows.

Most of these companies say they use customer data and artificial intelligence (AI) to monitor demand and determine when prices should increase.

• Learn more: How to get the best price when shopping online

Who benefits from the price increase?

They could link price increases to airlines that have long used dynamic pricing to increase fares during peak periods such as school holidays.

Another example is Uber’s price increase, which occurs when there are not enough drivers on the road to meet the number of taxi requests. You’ll likely pay higher rates if the weather is bad, during rush hour, or if there are major events nearby.

But other, more surprising industries are also following this example.

Almost half of British shoppers surveyed by Barclays last September said they had noticed further examples of price increases. One in three had experienced an increase in the price of food and drink in pubs and bars at peak times.

Britain’s largest pub group, the Stonegate Group (which owns Slug & Lettuce and Yates), is increasing prices by 20p in 800 of its pubs at peak times such as weekends and major sporting events. It was said that the fee was introduced to cover rising costs.

Some theme parks and attractions will also soon introduce dynamic pricing. Merlin Entertainments – which owns Alton Towers, Legoland, the London Eye and Madame Tussauds – announced plans to increase prices on busy days at 20 of its global venues earlier this year.

These price fluctuations are determined using AI, which is intended to help avoid overcrowding at peak times and “protect the guest experience.”

• Learn more: the best flight booking sites (and the ones to avoid)

Do supermarkets use dynamic prices?

Some supermarkets abroad are reportedly using dynamic pricing using digital price tags.

These electronic labels use AI to, for example, automatically reduce the prices of products that are nearing their best-before date, which could help reduce fresh food waste.

However, it is unclear whether supermarkets in the UK will adopt similar models.

Iceland, Morrisons and Sainsbury’s are all confirmed. Which? that they do not apply price increases. We have not yet received a response from the other supermarkets but will update this page if they respond to our request for comment.

• Read more: Which is the cheapest supermarket in the UK?

What are the disadvantages for consumers?

As performance ticket prices skyrocket and school holiday flights remain far more expensive than half-term fares, some consumers may be excluded from certain sectors that use dynamic pricing.

You may be able to benefit from better prices during off-peak times (or when demand is low), but only those with flexible schedules are likely to benefit.

Families with school-age children, for example, have no choice but to pay the increased flight prices during the school holidays.

Budgeting can also get complicated if you don’t know exactly how much you’ll be charged for your evening. Price fluctuations can also make it less clear whether you’re getting a good deal or not.

Others have pointed out that dynamic pricing could lead to price discrimination, as products or services that are more popular in certain areas may be priced higher. For example, retirees might end up paying more for certain products that are popular among their demographic because they live in a predominantly retired area.

Despite these disadvantages, Johannes Brustle, a doctoral student at the London School of Economics, believes that other companies will follow this example. “It is likely that more industries will look to adopt dynamic pricing in the future as greater amounts of data on consumer behavior become available,” predicts Johannes.

“However, cases of extreme price increases and increased consumer awareness of the pricing model are likely to lead to more backlash.”

• Read more: Budgeting tips

When does dynamic pricing violate consumer law?

While price increases are not inherently illegal, the way in which companies use them can be. According to consumer law, the practice must be transparent and must not mislead the customer.

Following the Oasis ticket sale, the Competition and Markets Authority (CMA) launched an investigation into whether Ticketmaster’s use of dynamic pricing was fair. At issue is whether fans received clear and timely information about price changes and whether fans were pressured to purchase tickets within a short period of time.

Which? has called on Ticketmaster and Oasis to do the right thing and provide refunds to fans affected by inflated prices.

The CMA’s investigation could serve as a cautionary tale for companies using or considering price escalation models.

“If prices rise dramatically within a short period of time and buyers are forced to make a purchase decision within that time frame, the company may be violating consumer protection laws,” explains Johannes.

“The industry needs to tread carefully when adopting dynamic pricing.”

• Read more: Ticketmaster’s “in-demand” pricing could violate consumer law