Dynamic pricing - what is it and what can be done about it?

Whether you're booking a flight, reserving a hotel room or buying something on Amazon, you're likely as a consumer to have experienced dynamic pricing. 

The strategy has its pros and cons but has been used without much hullabaloo in many industries for decades.

However the practice has come in for intense scrutiny in recent months due to its increased use in the entertainment sector. And it came into even sharper focus more recently when fans of Oasis were infuriated at queueing for hours online and then being asked to pay over over €400 for a basic ticket for the band’s long-awaited comeback, with dynamic pricing being to blame.

It left many fans longing for the so-called good auld days when you could just queue up for a ticket at your nearest HMV... 

But what exactly is dynamic pricing, how does it work, and who’s to blame for it? 

And what, if anything, can be done about it?

What is dynamic pricing?

Dynamic pricing is a strategy where the price of a product or service changes based on real-time demand, individual customer behaviour, and other factors. It can also be referred to as in-demand pricing or surge pricing.

It’s not a new concept at all. Dynamic pricing has been used by hotels and airlines for decades. For example if the demand for a particular flight is strong, an airline will increase the price of its remaining seats. Indeed, whenever you get on a flight, there’s a chance almost every passenger will have paid a slightly different price for their seat depending on how ‘in demand’ the flight was at the time they booked.  

It’s the same in the hotel and accommodation sector. Prices for hotel rooms regularly skyrocket at times of high demand. On the flip side, they can fall during less busy periods. 

Dynamic pricing is, however, a relatively new concept in the entertainment sector and it’s here where criticism of the practice has been most vocal. 

Why was dynamic pricing introduced in the entertainment sector? 

Back in 2011 Ticketmaster said it would begin adjusting prices based on consumer demand. The reason it gave was that tickets for highly popular events would often end up in the hands of touts who would charge multiples of the ticket’s face value. But acts and promoters got none of the extra money which some people were clearly willing to pay.

By adjusting prices dynamically, Ticketmaster wanted to capture some of the resale value for artists and promoters. Which seems kind of fair. If someone is willing to pay more for a ticket than its face value, why shouldn't the artist get the money instead of a third party?

Dynamic pricing also allows artists to make more money from touring in an era where royalties from traditional record sales have plummeted.

But the practice really only came to wider attention around two years ago when tickets for Bruce Springsteen’s latest tour went on sale. Some fans were infuriated at being asked to pay up to $4,000 for a so-called ‘in demand’ or ‘platinum’ ticket, which is what dynamically priced tickets are usually called. And they didn’t hold back from venting their frustration online. 

Yet despite the backlash, dynamic pricing has become more and more popular with artists. Top acts such as Taylor Swift, Drake, Paul McCartney, Ye and Harry Styles have embraced it. However the recent debacle surrounding Oasis tickets has put the practice firmly in the firing line of concert goers and even politicians, with calls for it to be banned.  

Who’s to blame?

A lot of the blame has been levelled at Ticketmaster with accusations that the company itself has now become a tout. However it’s not quite so simple…  

While Ticketmaster rightly comes in for much criticism for its high service fees, it doesn't set the price of a concert ticket. The price of a show is determined by the event promoter in conjunction with the artist and their management. And it will largely be based on what the performer is charging.

So if Taylor Swift or Coldplay demand €5 million a night for performing in the Aviva or Croke Park, a promoter like MCD will work out what it needs to charge per ticket to make an adequate return. And obviously the more a performer demands per night, the higher the price a ticket will have to be.      

What complicates things is that Ticketmaster is now owned by Live Nation, one of the world's biggest event promoters. 

Live Nation and Ticketmaster merged in 2010 to form Live Nation Entertainment. The deal was controversial and faced regulatory scrutiny in the US due to concerns about market dominance. But after an in-depth review, the US Department of Justice approved the merger, to the surprise of some, with certain conditions. 

So while Ticketmaster isn’t setting the price of a ticket per se, it’s owned by a company which does. Which is problematic. And in recent years there have been accusations that Live Nation Entertainment was abusing its dominant market position to increase the price of event tickets, which have been rising way above the general rate of inflation over the past few years even without the use of dynamic pricing. It's also thought that its Ticketmaster’s own pricing team that adjusts the face value of tickets based on demand for a particular show.

But regardless of whether or not all this is true, it is ultimately up to the performer as to whether dynamic pricing can be used for their shows. An artist can simply refuse to allow it. Performers like Oasis, Taylor Swift, Coldplay and Bruce Springsteen are not passive spectators in how their concerts are priced. Despite what they say, they’re a part of the 'problem' too.

Is dynamic pricing illegal? 

While a very small number of industries must charge a fixed price (such as taxis where you're charged a set price per kilometre) in general dynamic pricing isn't illegal. Although the competition authority the CCPC has come out with mixed messaging on the issue.

Businesses: “are allowed to adjust their prices in response to demand, or other factors, once an accurate price is displayed to the consumer in advance of the sale”, a commission spokesperson said.

You could argue this is fair for most normal goods and services. But the buying process for a concert ticket is very different to that of a flight or a pair of jeans. If you get up before 8am on a Saturday to buy tickets priced “from €86.50”, wait in an online queue for several hours, then at the last second be told the tickets are now over €400, and have only a few minutes to make a decision, you’ve a right to feel hard done by. 

However the CCPC later seemed to row back on its stance following intense criticism of how Oasis tickets had been sold.  

"The CCPC believes there are legitimate concerns around the consumer experiences of buying tickets this weekend. We are actively reviewing the situation and we will consider all options to ensure consumer protection law is followed."

What can be done?

There have been calls to ban dynamic pricing. But trying to ban the practice in the entertainment sector, while presumably allowing it to continue in the hotel and airline sectors, could lead to legal challenges and accusations of unfair treatment of artists. 

If anything, dynamic pricing is likely to become even more popular with businesses over the coming years, especially as the power of AI will make it easier for them to better gauge the real market value of what they’re selling at a particular time.

However the main argument given by Ticketmaster in favour of dynamic pricing (i.e. to stop touting) holds less weight in Ireland given the existence of anti-touting laws and improvements in ticketing technology that make forwarding on tickets more difficult.

Regardless, there are several steps that could easily be taken to improve the experience of ticket buyers. 

1. Let consumers know in advance if dynamic pricing is going to be used. People can then decide whether they want to get up early or wait in a queue for hours to get tickets for popular gigs that may end up costing much more than advertised.    
2. Set a limit to the number of tickets that can be sold per event under dynamic pricing. And have stricter rules on how concerts are promoted. Promoters shouldn’t be allowed to advertise an event at prices which won't be available to most people.   
3. Have separate online queues for those who wish to buy normal-priced tickets and those who are prepared to buy 'in-demand' or 'platinum' tickets. 
4. Have a system so that people can see in near real-time what the current price of a ticket is while queueing. People can then decide whether to remain waiting or not. Much of the criticism about dynamic pricing hasn’t been about the practice per se. It’s that people aren’t given enough notice as to what the price they’re expected to pay will be. Airlines use dynamic pricing and the cost of a flight will go up or down on an almost daily basis. But people generally accept this as they can see immediately what they're expected to pay. If concert goers knew more in advance what they were going to be charged there may be less criticism of the practice.  
5. More pressure could be placed on artists not to agree to the practice. Ticketmaster has come in for most of the criticism to date. But it's ultimately the artist who agrees to it.   

Is the problem even that important?

Under pressure to release data, Ticketmaster revealed that only about 12% of tickets for Bruce Springsteen's concerts were 'platinum', and thus subject to dynamic pricing. Most cost under $200, so nowhere near the $4,000 some had paid. 

It's likely similar for other concerts.

Research has also shown that dynamic pricing has led to fewer tickets ending up in the hands of touts or on resale sites.

You could also argue that concerts aren't an essential purchase and the Government shouldn't be getting involved in how they're priced. And for popular events, people will always be disappointed as supply will always outstrip demand. Banning dynamic pricing isn't going to change this. And the practice does at least allow hardcore fans who truly want to see a show, and who are prepared to pay more, a better chance of getting tickets. In theory at least... 

Regardless, scrutiny of the practice is likely to only intensify over the coming months with louder calls for action to be taken.

But the easiest and quickest solution is for artists to simply say NO to it.