Is surge pricing a fair way to manage demand? This is the question posed by the BBC in an article included in the section “50 Things That Made the Modern Economy” and which is based on a research on the cost of public transport in New York in the ’50s.
Revenue management literature shows that a variable pricing structure appeared in the airline market in the ’70s as a solution developed by American Airlines to cope with a highly competitive market. In the BBC News article is reported a study carried out in the ‘50s commissioned by the Mayor of New York to find a solution to the management of subway flows. The economist William Vickrey, one of the authors of the research, attributed the problem of overcrowding at peak times to the fact that users paid a fixed fare.
Vickrey’s idea was simple: with fully-filled trains you had to charge more, while you had to stimulate its use during the hours with the least demand by offering the trip at a lower price. A simple change in the fare would have allowed for a more manageable line, a larger total number of users and an increase in revenue.
The barrier Vickery had to face was the technological one, with the access systems of the time that did not allow to manage different rates. The intuition, as reported by the BBC, led the economist to win the Nobel Prize in 1996.
Dynamic pricing is now at the basis of the business models of the major players in the transport market such as, for example, Ryanair, Uber and Flixbus.
More than 50 years after Vickrey’s proposition, is it time for subway, motorway and car park operators to rely on Dynamic Pricing technologies, such as Dynamitick’s, which can optimize the price by adapting it in real-time to the demand trend?
Here the full article.