Question

Does "dynamic pricing" improve economic efficiency? Explain.

Why is it imperative for brick-and-mortar stores to adopt the same pricing policies as those of online retailers? In terms of game-theory analysis, why is it a best response for brick-and-mortar players to do so?

Answer 1

Solution

Dynamic pricing is the process of pricing the goods at a price which the customer is believed to be able to pay.

Yes,it can improve economic efficiency.By following the dynamic pricing a firm would be able to sell all its goods /services to the customers at different prices depending upon the change in demand.

Example : The airlines follow the concept of dynamic pricing.They sell the tickets at a much higher price as the travel date approaches.This is because there are customers who will purchase at higher prices (like business people) who always plan their trips in short notice.Whereas the customers (who will be able to plan in advance) can get the advance interms of lower price.

During the off-season,the airlines sell the tickets at a much lower price because of weak / low demand.Instead of that if they choose to sell the tickets at a fixed price,they would incur lhuge osses during the off-peak season.

Yes,it is crucial for the brick-and mortar stores to adopt the same pricing policies as those od online retailers.If the brick - and - mortar stores sell at a higher prices than the online stores,the consumers would shift to buying goods from the online retailers.

In a nutshell,the online retailers in order to attract the consumers have to sell at a lower price than the brick-and-mortar,but the brick-and mortar stores need to sell the goods at a cost lesser than online retail stores.Instead they can attract the crowd even if they match the price with that of the online retailers due to advantages like instant delivery,look and feel,genuine,option to select,lower / no cost of delivery.

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