CER 2026 Essay Contest 3rd Place: Ticket Pricing
In recent years, dynamic pricing has become more prominent across many industries. Whether booking a hotel, ordering an Uber ride, or buying a ticket via Ticketmaster, consumers increasingly observe fluctuating prices (Woodcock). By temporarily raising or lowering prices, companies aim to respond more quickly to changes in demand and consumer behaviour in order to maximise revenue. While dynamic pricing may benefit firms, customers often criticise it for exploiting buyers and worsening inequality. However, from a supply-and-demand perspective, dynamic pricing has both advantages and disadvantages, as discussed below.
In general, dynamic pricing works through price adjustments with the typical assumption that the supply is perfectly inelastic in the short run. Live events or planes have a fixed capacity, which cannot rise when prices rise. The short-run supply curve is vertical, which disables firms to expand output when demand surges occur.
When there are very steep demand curves for live events, companies such as Ticketmaster are able to use their market power, and, as it is not operating in a perfect-competition market (Woodcock), it can use dynamic pricing in a form of price discrimination.
In theory, Ticketmaster might decide to increase the price to ration the scarce tickets when the firm’s initial price choice proves to be mistaken, in the sense that it has selected a price that is significantly below the price that it could charge while still avoiding unsold capacity (Woodcock). These higher prices would reduce the quantity demanded among marginal buyers and allow the ticket to be purchased by the consumer with the highest ability and willingness to pay, creating allocative efficiency. Furthermore, this could cause arbitrage to disappear, making these primary markets more efficient and causing secondary markets to shrink.
On the other hand, when there is only very low demand, dynamic pricing would lower the prices to make it more accessible to buyers. By attracting consumers who are interested in the good but may not be willing or able to pay the higher price, the quantity demanded increases and companies are able to increase revenue when supply is already fixed.
Nevertheless, dynamic pricing does not replicate the behaviour of a normal market in the traditional sense as it does not equilibrate through supply expansion. Airlines often argue that when demand rises, prices must rise as well, since the marginal cost of adding more airplanes to the market increases. Additional aircrafts require more pilots, more maintenance, and more capital investment. In reality, however, these adjustments occur only to a limited extent, as the frequency at which prices fluctuate under dynamic pricing far exceeds the timescale on which supply can adjust. Expanding capacity takes weeks, months, or even years, and the price elasticity of supply cannot change meaningfully in the short run (Woodcock). As a result, dynamic pricing can “clear the market” on the demand site but cannot adjust supply in the short run. For the single flight, dynamic pricing would be purely allocative and not productive (Woodcock), although, in the long-term, it can still impact investment decisions (Woodcock). More specifically, when demand is above capacity, dynamic pricing determines who among them who are already willing to pay the cost-covering prices gets the ticket, not how many tickets will get sold, while when demand is below capacity, lower prices could increase the demand slightly although the capacity is again fixed.
According to the standard theory, prices signal information about scarcity and demand. In the case of dynamic pricing, sudden price changes do not necessarily add relevant information about long-term trends. Similarly, dynamic pricing can provide some detail about price sensitivity that it would not otherwise get (Woodcock). Purely considering whether a product was sold out, would not provide enough information about the consumers’ willingness-to-pay or the market-clearing price (Woodcock). Dynamic pricing can create additional information for a firm in the short run, but it is limited as a signal of long-run scarcity and difficult for competitors to assess, as it becomes harder to identify the cause of price changes as dynamic pricing is often chosen strategically.
When a firm raises price above the initially fixed price when demand exceeds capacity, consumer surplus reduces (Williams) and the fixed capacity gets reallocated (Williams). In this case, dynamic pricing is primarily used for profit maximisation, as prices lie above the initially fixed level, increasing producer surplus.
Defenders of dynamic pricing might argue that dynamic pricing allows those who place the highest value on certain goods to ultimately purchase them. However, equating willingness-to-pay with the value someone places on the good would only be valid if financial ability were the same for everyone. As this is not the case, it leads to a regressive distribution: high-income buyers are often able to capture more tickets due to their greater ability to pay and because they can sacrifice fewer essential alternatives than most low-income earners (Woodcock). While wealthier individuals may benefit from these policies, they might increase social inequality and division (Woodcock). The result is mainly wealth transfers, not welfare gains. Nevertheless, welfare can still be affected, as higher prices may indirectly reduce early sellouts, although these impacts are limited.
On the other hand, when demand is low, lowering prices can increase the quantity sold, as it increases consumer surplus. In this case, welfare may increase even though output cannot exceed capacity. When comparing dynamic pricing with other alternatives, it does not perform as poorly as often suggested. Considering queuing, it can also be regressive or unfair as it usually favours individuals with access to faster technology or greater time flexibility (Woodcock).
In conclusion, dynamic pricing aims to equilibrate supply and demand through rationing and price changes in markets where supply is temporarily fixed. In that sense, it operates largely through redistribution and wealth transfers, potentially increasing social inequality and division. Nevertheless, dynamic pricing can also have positive effects by reducing arbitrage, providing firms with more detailed information about price sensitivity, and replacing more wasteful alternatives, such as queuing. Therefore, its overall impact is ambiguous: it may improve efficiency (Collins) while also worsening inequality and perceived fairness.
References:
Alexander MacKay, Dennis Svartbäck, Anders G. Ekholm, 2023, “Dynamic Pricing, Intertemporal Spillovers, and Efficiency”, Harvard Business School
Kevin R. Williams, Aug. 2017, “The welfare effects of dynamic pricing: Evidence from airline markets”, Cowles Foundation for Research in Economics, Yale University
Moshe Babaioff, Shaddin Dughmi, Robert Kleinberg, Aleksandrs Slivkins, Mar. 2015, “Dynamic pricing with Limited Supply”, ACM Transactions on Economics and Computation, Vol. 3, No. 1, Article 4
Ramsi A. Woodcock, [Vol. 105:1759 2020], “The Efficient Queue and the Case Against Dynamic Pricing”, Iowa Law Review
Robert Collins, Dec. 2025, “Dynamic pricing, efficiency, and the second-best problem”, Robert Collins