Knowledge at Wharton This Week In Business: Understanding Dynamic Pricing in Today’s Inflationary Climate
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Jul 25, 2025 John Zhang, a Wharton Professor of Business Economics and Public Policy, dives into the intriguing world of dynamic pricing strategies. He reveals how firms adapt their pricing amid rising tariffs and inflation, affecting consumer behavior. The discussion highlights the historical evolution of these strategies and their application across industries like airlines and hotels. Zhang also emphasizes the balance businesses must strike between profit motives and consumer perceptions, illustrating real-world examples of success and failure in dynamic pricing.
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Tariffs Shift Pricing Dynamics
- Tariffs increase firm costs and make consumers more tolerant of price hikes.
- This environment incentivizes firms to raise prices dynamically without fearing losing customers to competitors.
Principles of Dynamic Pricing
- Dynamic pricing charges different prices based on consumer willingness to pay.
- Firms can increase prices when consumers are less sensitive and lower them when sensitivity is higher.
Use Discounts to Smooth Pricing
- Use dynamic discounts rather than surging prices to avoid upsetting customers.
- Start with higher prices then offer time-sensitive discounts to improve customer reception.