The Independent newspaper reported this yesterday:
Supermarkets could introduce “dynamic pricing”, allowing them to increase the cost of goods when demand is high, the Bank of England has warned.
Consumers are already used to such pricing methods when they use Amazon, Uber or buy tickets for flights or concerts. But it could now become commonplace for even the most essential items, such as food.
The Bank says a third of companies are planning to use “market-responsive pricing tools”, up from one in five at present.
For those not familiar with dynamic pricing, this term describes a situation in which goods or services are sold in what is, in effect, a perpetual auction, with prices adjusted in real time to reflect current demand. A floor might be set, which might be called the “normal price”, but thereafter the price is allowed to increase if there is sufficient demand for the retailer to believe that they can command a higher price for the limited quantity of a product that they have on sale at that particular point in time because there is sufficient demand for it at that higher price.
To date, this dynamic pricing process has been seen primarily in consumer markets managed online. The notorious case arose with regard to the price of tickets for Oasis concerts, but dynamic pricing has now been used for the sale of tickets for many events, with the hysteria and hype surrounding fan-based ticket sales fuelling price increases that deliberately exclude many, exploit many more, and guarantee access to those with the deepest pockets.
This technology has not been readily replicable in retail environments to date because, as The Independent notes, legislation requires that the price on a supermarket shelf be reflected in the price charged to the same customer at the till. In that case, until the two are replicated by electronic linkage, which has been rare to date, dynamic pricing has been hard to implement. Given the rapid spread of technology, the report implies that many retailers are exploring ways to overcome this constraint.
It is easy to imagine where this might be most easily achieved. I suspect, in view of the current uncertainties over petrol and diesel supply, the likelihood that these will be subjected to dynamic pricing quite soon is very high indeed. We are already used to the price of these products changing regularly, and usually upwards very rapidly, with a decided lag in their subsequent reduction. With dynamic pricing, a fuel crisis, and a desperate population, the opportunity for dynamic pricing in this market to benefit fuel suppliers at consumers' expense is very high indeed. Fuel rationing by price, about the unacceptability of which I have already been writing, could become very apparent, very quickly as a result, with on-the-spot exploitation becoming a normal factor of life very soon.
The extension of this idea into supermarkets is, however, what truly worries me. As Steve Keen and I discussed today in our podcast/video, the risk of potential famine, including in the UK, is high right now. Our politicians might be in denial about this issue, but the fact is that the current prices of fuel and fertiliser are making many food supply chains impossible to manage.
Fertiliser supplies are not reaching those who need them in the modern agricultural environment, and the delivery of foodstuffs over very long distances is becoming prohibitively expensive. In addition, in some Southeast Asian countries, fuel rationing is already making local food distribution extremely difficult. There is a very real risk that this situation might be replicated here in the UK.
Combine that risk with the possibility of dynamic pricing, and the reality of rationing by price becomes very real indeed, with those on lower incomes being priced out of food altogether as a consequence. The warning that famine might result is very real in this situation.
I can see why retailers, with rising input prices and a focus on their own profitability, might find the prospect of dynamic pricing appealing, especially in situations where desperation and fear drive demand higher, with prices moving in the same direction. However, the social consequences of this might well be too catastrophic to contemplate, even for a government as neoliberal and indifferent to people's needs as our current Labour administration is.
The reality is that we are very likely to need food rationing and price controls this year to ensure the supply of essential items to everyone in the UK. As I have recently argued on this blog, equality of provision, meaning that everyone is guaranteed access to the essential goods and services that they need to ensure that they can live free from fear, might be both the best definition of equality that we can have and, simultaneously, one of the best indications of the duty of government that is available.
We are at significant risk of this access failing now, even in a country such as the UK, where there is a high likelihood of there being sufficient food to go around if properly allocated, especially if waste is managed. The prospect of many going without is very real as this year progresses.
And please do not think that policy failure cannot lead to famine. The Great Starvation, as it is properly called, in Ireland in the late 1840s was not, as such, a famine caused by potato blight, but was the deliberate consequence of government policy that refused to take action to address the failure of that crop. At the time, there was sufficient food in Ireland for everyone to be fed. They were not, because the government refused to alter regulations and taxes to ensure that everyone had access to what they needed. The precise number of people who died as a result, and the number who emigrated, will never be known, but Ireland has never recovered in population terms from that event.
A failure by the government to act now might not be that catastrophic in the UK, though it could be in other parts of the world, where a refugee crisis could result. However, the need for government action at this time is very high indeed, and a reliance upon rationing by price would represent reckless irresponsibility on our government's part.
So, a rationing system needs to be designed, and the potential for its rollout needs to be planned. That said, the fact that not everybody has access to a smartphone would have to be taken into account.
At the same time, price controls on essential items must be considered, and regulatory changes to better manage waste are essential.
Simultaneously, the fact that the government might be injecting significant new money into the economy as a result will have to be managed. The only way to do that is to increase, potentially significantly, the rates of tax on wealth and on income and gains derived from wealth, with the last two being the initial points for change because they would be the easiest to alter.
At some point, the reality that we are living in a war economy, which is likely to continue for some time to come because there is little or no prospect of peace in the Middle East as a consequence of the actions of Israel, even if the USA wants or needs to back out of the war it started, is going to need to be accepted. The sooner our government gets its head around the consequences of this and starts managing them, the better. The level of harm that might arise as a result of failing to do so is so great that the risk of inaction cannot in any way be justified.
In this situation, being prepared is essential, and we are a long way from being so. In that context, having plans to tackle price volatility, profit gouging, and exploitation is just one of the many issues to be addressed, but an essential one when there is a real possibility of it happening, with potentially devastating consequences for some in the UK population.
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One of the reasons why I am sceptical about smart meters is that we could end up with dynamic pricing for electricity and that didn’t end well in Texas with people freezing to death
Agreed.
Another English word that has been abused by Neo-liberalism.
When I and my fellow travellers (managers) talk of the ‘dynamism’ of our organisation, it is coded management speak for ‘chaos’ and ‘disorder’.
Don’t underestimate the uniparty government. They are already quite happy to let the market decide who freezes to death due to high electricity costs, and who suffers or dies due to their desire to privatise all aspects of health care. They are entirely ok with the rise in food banks, stagnant wages, benefits cuts, AI taking jobs. Why not let supermarkets decide who dies of hunger, its the next step in their plan.
It’s called outsourcing blame and responsibility
Economic theory depends on everyone having knowledge of prices. Even if you believe conventional economic theory, dynamic pricing prevents pricing knowledge. So dynamic pricing destroys markets. They won’t work if prices are constantly changing.
Thank you for highlighting this danger. I too believe it is very real.
I suggest that when prices of essentials start to rise, the government will fail to introduce price controls soon enough and also ensure that individuals will only be able to buy limited quantities ie rationing, as I think what will be needed should be clearly stated. I hope there is a department somewhere working out how a system of rationing can be fairly introduced that doesn’t depend on a constant supply of electricity. (But I bet that’s what we will get.)
It seems to me that it will, sadly, become essential. I pray I am wrong.
Thank you Richard, and to Therese commenting on an earlier post re the dynamic pricing article. I included this in my letter to my MP.
I have noticed that our local coop now has e-ink displays for pricing. This has long been common in European and US supermarkets. One of the previous problems with implementing dynamic pricing in supermarkets would have been that someone physically needed to reprice everything before they could change the till price. It’s now possible to do that automatically at scale with e-ink displays that could update dynamically.
Morrisons already charge different prices for their “Morrisons now” fast delivery service vs their standard online delivery. Many supermarkets have different prices for food ordered via things like Deliveroo and Uber Eats too, and they also now openly charge less for customers with loyalty cards vs ones they do not do intrusive data collection on.
I think consumer legislation is required here – they are already into the realms of confusion marketing and with dynamic pricing they will move into exploitative practices.
The legislation should say something like prices are only able to change on a daily or weekly basis and no more frequently than that, and that they are not allowed to charge different prices to different types of consumers, or discriminate based on loyalty card status. So, a loyalty card can give an additional discount but they cannot advertise the loyalty card price as the standard price like Tesco have started to do.
I feel someone like Martin Lewis would be well placed to do this. No one likes confusing or misleading pricing, and we should be united in tackling it before it gets worse.
Thanks
I am not sure that changing the price on the shelf electronically will help the issue that the price at the till must be the price on the shelf. When I used to shop in person I might take an hour between picking up my first item and checking out. Unless dynamic pricing could only change prices once per day, there would still be an issue. And for 24 hour supermarkets even that could not guarantee legal compliance. Plus, I now shop online and have the items delivered. I might place the order a week ahead of delivery and the price cannot increase from the one I agreed to a week earlier. Only if the government agreed to relax those rules could this happen. Aah, wait a minute ……..
It’s worse:
Sainsbury’s supermarkets are using live facial recognition cameras in their stores. These can use AI to match you with the extreme amount of data available about you, bank balance, transaction history, (and so much, much much, more). So much data that they know what you’re thinking about having for dinner, and with whom, for example. Add that to the electronic price tags, and now we have personal price maximisation.
Given that there’s not even a legal framework for facial recognition technology yet, is Sainsbury’s acting within the law? (GDPR) Does Sainsbury’s care about the rule of law anymore? Does the government?
When all these totalitarian technologies combine, we have a much, much bigger human rights problem. We may look back with envy at those who starved to an early death, and silently wish we lived in north Korea.
Neoliberalism has got to go.
The post ATL is spot-on; there are very solid reasons to be apprehensive. I was going to write something similar to your remarks about the vast amount of surveillance data being used to personalise dynamic pricing. But facial recognition is unnecessary: shops are moving from loyalty cards to dedicated apps which are also replacing till receipts can suggest “special offers” just for you. Before long the shop app will be all but essential to use the store – and forget any hollow promises about data protection. Even if it is not sold on, your shopping history is gold dust for the stores. In our local supermarket, some prices already vary if you either check-out, or even better pay, using your store app (linked to a store debit card). At least that is clearly signposted at the moment, but the electronic price tags on shelves will be adaptable (if they are not already) to show a customised price when you scan them with your app: the technology is doubtless ready, it’s just a question of the timing of the implementation. Dynamic and personalised pricing: what could go wrong?
All supermarkets practice limited dynamic pricing by reducing the price of perishable items near to their expiry dates.
Shopper accept this because it makes sense.
Tesco and Coop did trials of changing prices throughout a store dependent on the time of day, using electronic shelf edgings which changed the prices instantly.
Shoppers did not like the unfairness and unpredictability of this and it was not continued.
But the system exists and could be easily restored/installed now that we have accepted that individual items do not need to be price-marked.
I am not saying that this system was developed to facilitate dynamic pricing, but the total digitalisation of the whole food retailing system makes it a lot easier to enact.
Agree. Local supermarket, 1600hrs Saturday – large quantity of fish @ the fish counter @ half price. Guess when I buy fish (& then chuck it in the freezer). Obvs not everybody can do that. But as you point out, with electronic price tags re-pricing is easy. The problem wrt supermarkets is information assymetry, they know much much more about shopping habits than shoppers. This allows them to maximise revenue.
Spot on
Mike,
My local supermarket sells loose chicken breasts for $12AUD/Kilo or $9AUD if you buy 2 Kilos or more at once. This is just one of many savings available for bulk purchase, so those of us who can afford a large freezer and have the cash-flow to keep it filled can access the discounts while those who most need them cannot.
I am worried about those without the means to bulk purchase and few have large freezers in the UK.
In France all supermarkets now have electronic price indicators on the shelves including the price/kg /L for quick comparison without calculation :). If the price differs at the register from the price displayed on the shelves the supermarket is legally obliged to accept the lower price (advantage consumer). They can only vary the price by day which some have done. Any regulation should not allow the variation of the price hour by hour, it should be set per day.
https://signal.conso.gouv.fr/fr/actualites/erreur-de-prix-en-caisse
“Dynamic” sounds so innocent. There are some rather less attractive words that can be used to describe an unreasonable and extractive increase in prices when supplies are short and demand is high. Scalping. Price gouging. Profiteering.
Some economists will tell you that this is a good thing because it sends price signals. Not their fault if people starve. People need to look after themselves. No such thing as society.
Agreed
And that says so much about most economists. Believing that markets are the answer to everything and prices are the only answer you need to supply and demand.
Utterly oblivious to inequality and poverty, and the role of power and wealth.
Agreed
They are not oblivious, they just think it’s natural.
If thy think about it at all its rationalised survival of the fittest, if you are poor its because you couldn’t get rich. Social Darwinism never went away, it just became part of the fabric of our parasitic, individualised, unsustainable culture.
Economics never applies a common sense test…
Under current legislation you’d have photograph the price on the shelf and challenge it at the till if different. Bonkers.
The same idiocy accepts it is(was?) sensible to freeze fish, fillet it in a cheap a labour economy the other side of the world and then refreeze it and send it back for sale.
My grandfather used to look at con trails and say – they can’t be doing any good. He was instinctively right, but wrong according to economics.
Its hard not to conclude “were all doomed in our beds” (Fraser)
Dynamic pricing should only be allowed if the seller can demonstrate that there is as much chance for the prices to fall as to rise. Otherwise the consumer is just being ripped off because the seller wants larger profits. In situations where demand farr out strips supply (oasis tickets) this was only going to lead to one thing: price inflation. This is just exploitation of the consumer.
We can’t argue with the basics of Supply and Demand, but we can demand free markets. These depend among other characteristics on perfect information, and ‘dynamic pricing’ combined wth ‘loyalty cards’ give suppliers much more information about customers’ financial decisions than customers have about suppliers’ – except perhaps on perishables approaching their end dates. The imbalance of information automatically gives the more-informed party an unfair advantage in the market, and we all pay.
This abuse of market power is exploited also in the insidiously creeping-in pricing of not just airline tickets but also railway tickets for quite ordinary journeys. They are often tied up with conditions about being valid on only one train, making much more expensive the flexibility that travel inevitably requires (when will that meeting end? or that connection reach Brussels to catch the Eurostar home?). Again, monopolistic behaviour, which demands a good old-fashioned Monopolies Commission investigation into the use of ‘big data’ in consumer pricing.
JM
Yes, I agree. If you were to use market mechanisms against this you could force the supermarkets to electronically publish their prices with an API. At the moment they try to make it very difficult to directly compare prices on their websites in an automated way.
If they are allowed to price dynamically then we should be able to adjust our loyalty dynamically in response!
It seems highly unlikely that a government in thrall to big tech, chained to the ankles of the Trump regime and in policy hock to its big donors and US corporates will do anything at all to resist or manage the spread of dynamic pricing.
Dynamic pricing has been used on the railways for 60 years
As the Northern towns and cities closed down and jobs became scarce masses of younger people and families came south
But for those young workers or students going back to see their relatives, often at the weekend, prices soared. Ironically with no computers they employed some workers to calculate the sliding scale as to which city or town was emptying fastest.
And it has always been pernicious, and deeply corrosive of environmentalism