Tiered pricing is EVERYWHERE now. In supermarkets, if you don’t have their app/loyalty card you have to pay higher prices. They frame it as a “discount” or “savings” for having the app, but clearly it’s just a punishment for not giving them your info and allowing them to track/advertise at you.
In restaurants/fast food places, you get “discounts” (i.e. regular prices) via the app/email list, and if you don’t have the app or give them your email address you don’t get the discount (read: you have to pay higher prices). And of course they can “tailor” personalised “deals” directly at you based on your past behaviour to optimise how much money they get out of you.
I just looked at a hotel and they’re advertising a “discount” if you give them your email address (read: a higher price if you don’t allow them to advertise at you).
I absolutely hate this behaviour. I know exactly why it’s there: some people are willing to pay more for convenience/no ads, and some are willing to go to more effort / put up with ads for a lower price. Either way they get more money out of you: the logical conclusion of capitalism and chasing higher profits.
It feels like this should be illegal. It feels like a cousin of price gouging, which is already illegal. Ofc it never will be outlawed in america - idk how much this happens across the pond though - but I hope one day this could be outlawed in europe.
That’s not how market forces work, at all.
How do they work?
Literally nobody knows, anyone who says they do is lying and probably trying to get you to give them money.
That isn’t helpful. You don’t have to have a PhD in economics to understand basic supply and demand.
OP postulated that if algorithmic pricing is barred, that companies will simply raise their prices to the prices that they previously charged rich people.
Companies are not cartoons. They don’t try to maximize human misery; they try to maximize profit. Often maximizing profit does maximize human misery, but ultimately the goal is to maximize profits.
Charging everyone the current rich person price would be idiotic for companies to do. Everyone except the few wealthy folks would just refuse to shop there. Even if the company is a monopolist, people will just go without. At some point, people stop paying for Comcast, even if Comcast is the only net provider in their area. If Comcast decides to charge $10,000/month for internet, I’m just skipping having wired internet at my house, even though Comcast is the only wired provider at my address.
Imagine a company uses algorithmic pricing to price its widgets. They charge between $100-200 depending on customer’s income. But these price tiers weren’t chosen arbitrarily; they were set experimentally. They tried out a bunch of prices and found that someone who say, makes $60k/year, will only be willing to spend $120 on the widget. Jacking the price up to $200 will not mean that the guy making $60k will pay $200. It means he’ll simply not buy your widget.
Companies already try to maximize revenue. The complicated pricing structure of a company that uses algorithmic pricing is already at a local optimum for maximizing the company’s profit. For each income band, they’ve figured out the price they can charge before people start walking away. They can’t just jack up prices, as the prices are already set at their most profitable maximum.
And I don’t even care if we’re talking essentials like food. Jack up the price of any food product and people will just move to the a less luxurious product. Charging $100/lb for chicken won’t result in middle class people paying $100/lb for chicken. It will just mean middle class folks not buying chicken.