What is dynamic pricing? Examine the ethical issues involved in dynamic pricing by a private firm and by a govt. organization. (150 words – 10 marks)
Dynamic pricing is a pricing strategy wherein the price is not firmly set; instead it changes based on changing circumstances, such as increases in demand at certain times, type of customer being targeted or changing marketing conditions.
The fundamental concern w.r.t. dynamic pricing strategies is the availability of
viable alternatives. This ensures that any such mechanism provides benefits to
the organization but not at the expense of customer welfare.
Therefore, dynamic pricing by the private sector poses relatively fewer risks since
the risk of customer exploitation is offset by the presence of competition and
impartial regulation by the govt. offset. As such, the customer now pays willingly
to get access to a service that has limited supply and perceives this as a
However, since the govt. functions as a monopoly in many services, such actions
can be perceived as exploiting the citizen’s helplessness. The concerns that arise
i) The perception that it is an attempt to compensate for the govt’s inefficiencies
by imposing a burden on the citizens.
ii) Concerns about a conflict of interest since the govt is the service provider as
well as the regulator.
iii) For vital services, there is no value addition for the customer. Yet, he is
compelled to pay the additional charge that is levied.