I mean, if there was *any chance* they might use dynamic pricing to pay dynamic wages to reward staff more for high stress periods that could be a good thing. Was that going to happen….? Oh why do I ask!
I feel like the problem is that economists, being the kind of people who do economics, have a very low cognitive cost for "working out the best value time to have a burger" and a low cost associated with "realising you made a bad economic decision" and don't realise that for everyone else it's near-infinite.
The only economist comment I made the obvious point that any competent marketing manager would have announced off-peak discounts rather than surge pricing (after raising the standard price to the surge level with as little noise as possible). People love discounts almost as much as they hate surcharges.
I see Nemo below already made this point, but I've typed it now, so I'll leave it up.
I mean, there are definitely places that do pay staff more for particular times of day. One neat trick would be employees using AI to work out when they've estimated poorly and agree to the "nominally high-stress but actually a doddle" shift.
I don't care if it's not exactly right, that Matt Esparza tweet is brilliant!
You have put the matter much better than I did when I was arguing with economists about this. I just assumed that the cognitive task of prediction was too hard and that people would perceive prices as unpredictable. My point was that there was an essential difference beyond framing as a discount between predictable price variations like happy hour or time of day power pricing in that people would be able to decide whether immediacy or price was more important case by case and that therefore efficiency gains from variable pricing would be split between the producer and consumer. The effect - some would say the point - of unpredictable pricing is to capture all these gains for the producer.
But your explicit identification of the "cost of cognition" is the way to go, I think. It is the "language of economics" as you put it.
A comment on the Wendy’s pricing scheme that I’ve seen is: “If they’d just quietly raised the prices, and then offered dynamic X% off, they wouldn’t have faced as much backlash, while achieving the same effect.”
This assumes that if they could still get buyers at raised prices they wouldn’t just leave them high perpetually, but I think the notion is generally correct. I think this agrees with your point about the cognitive/perception effects on pricing. A consumer is more likely to suffer the additional cognitive burden of the dynamic pricing if they feel like they’re winning a game, rather than dodging a bullet.
Although speaking as a consumer, I’d generally prefer the Quaker-static pricing in my meals, plane tickets, AND taxi services.
Interesting to note that most of the previous examples given around uses of surge pricing relate to services, rather than goods. It’s arguably significantly easier to determine within your time constraints when you need to eg be on a given train/taxi etc than it is to determine when to buy a given good. However, from the perspective of Wendy’s, leaning in on surge pricing seems to be a suboptimal way of dealing with demand fluctuations (even leaving aside the points you raise about popularity etc). Insofar as surge mitigation occurs through backroom pricing rather than front end offers, you are unlikely to see the same extent of behaviour change in getting food off peak, instead relying instead on simply capitalising on the moments of high demand. These presumably leaves them in a Catch-22 - the moments of high demand will require large staff and capital for fully capitalise on, however the remaining moments will see most of said capacity sitting idle and wasting money. A much better idea would be to better tailor and target your offers like the delivery services do to spread the load more widely and reduce overall costs - plus, it has the added benefit of making your customers feel like they are getting a deal, rather than being screwed over by the algorithm.
As the local "economists still haven't read Shannon" bore - I approve of this post.
I think as well a lot of the "economists liked the idea" is economists assuming that as people inclined to calculation they would benefit from it. "Lower prices for smart people" - whereas ordinary consumers are more able to notice it looks more like "higher prices for people who have less control over their time" which touches on some wider fairness issues.
Fast food companies use AI to pick locations so what I see is clusters of FF places. If all used surge pricing the customer is force to pay the surge or drive to a different location. Then like all price fixing schemes there is the problem of the cheater.
You can think of buying a hamburger at a fast food franchise as buying food plus a pricing hedge, that is, the basic purchase price includes an option or warrant for being able to purchase the item at that price. It's a big difference between buying a house and renting. Buying gives one a fixed payment. Renting does not.
I also heard that the single price was invented by the Quakers. I also heard that it became necessary when stores hired clerks, who could not be trusted to haggle well with their customers.
Second thing. I happened to have married homo economicus. She l*o*v*e*s cognitive loads, because they tend to redistribute wealth from less sophisticated customers to her, with the retailer sharing in the surplus. She's never happier than when the car dealer starts to look uncomfortable.
I mean, if there was *any chance* they might use dynamic pricing to pay dynamic wages to reward staff more for high stress periods that could be a good thing. Was that going to happen….? Oh why do I ask!
I feel like the problem is that economists, being the kind of people who do economics, have a very low cognitive cost for "working out the best value time to have a burger" and a low cost associated with "realising you made a bad economic decision" and don't realise that for everyone else it's near-infinite.
The only economist comment I made the obvious point that any competent marketing manager would have announced off-peak discounts rather than surge pricing (after raising the standard price to the surge level with as little noise as possible). People love discounts almost as much as they hate surcharges.
I see Nemo below already made this point, but I've typed it now, so I'll leave it up.
I mean, there are definitely places that do pay staff more for particular times of day. One neat trick would be employees using AI to work out when they've estimated poorly and agree to the "nominally high-stress but actually a doddle" shift.
I don't care if it's not exactly right, that Matt Esparza tweet is brilliant!
You have put the matter much better than I did when I was arguing with economists about this. I just assumed that the cognitive task of prediction was too hard and that people would perceive prices as unpredictable. My point was that there was an essential difference beyond framing as a discount between predictable price variations like happy hour or time of day power pricing in that people would be able to decide whether immediacy or price was more important case by case and that therefore efficiency gains from variable pricing would be split between the producer and consumer. The effect - some would say the point - of unpredictable pricing is to capture all these gains for the producer.
But your explicit identification of the "cost of cognition" is the way to go, I think. It is the "language of economics" as you put it.
A comment on the Wendy’s pricing scheme that I’ve seen is: “If they’d just quietly raised the prices, and then offered dynamic X% off, they wouldn’t have faced as much backlash, while achieving the same effect.”
This assumes that if they could still get buyers at raised prices they wouldn’t just leave them high perpetually, but I think the notion is generally correct. I think this agrees with your point about the cognitive/perception effects on pricing. A consumer is more likely to suffer the additional cognitive burden of the dynamic pricing if they feel like they’re winning a game, rather than dodging a bullet.
Although speaking as a consumer, I’d generally prefer the Quaker-static pricing in my meals, plane tickets, AND taxi services.
Interesting to note that most of the previous examples given around uses of surge pricing relate to services, rather than goods. It’s arguably significantly easier to determine within your time constraints when you need to eg be on a given train/taxi etc than it is to determine when to buy a given good. However, from the perspective of Wendy’s, leaning in on surge pricing seems to be a suboptimal way of dealing with demand fluctuations (even leaving aside the points you raise about popularity etc). Insofar as surge mitigation occurs through backroom pricing rather than front end offers, you are unlikely to see the same extent of behaviour change in getting food off peak, instead relying instead on simply capitalising on the moments of high demand. These presumably leaves them in a Catch-22 - the moments of high demand will require large staff and capital for fully capitalise on, however the remaining moments will see most of said capacity sitting idle and wasting money. A much better idea would be to better tailor and target your offers like the delivery services do to spread the load more widely and reduce overall costs - plus, it has the added benefit of making your customers feel like they are getting a deal, rather than being screwed over by the algorithm.
As the local "economists still haven't read Shannon" bore - I approve of this post.
I think as well a lot of the "economists liked the idea" is economists assuming that as people inclined to calculation they would benefit from it. "Lower prices for smart people" - whereas ordinary consumers are more able to notice it looks more like "higher prices for people who have less control over their time" which touches on some wider fairness issues.
Fast food companies use AI to pick locations so what I see is clusters of FF places. If all used surge pricing the customer is force to pay the surge or drive to a different location. Then like all price fixing schemes there is the problem of the cheater.
You can think of buying a hamburger at a fast food franchise as buying food plus a pricing hedge, that is, the basic purchase price includes an option or warrant for being able to purchase the item at that price. It's a big difference between buying a house and renting. Buying gives one a fixed payment. Renting does not.
Two things:
I also heard that the single price was invented by the Quakers. I also heard that it became necessary when stores hired clerks, who could not be trusted to haggle well with their customers.
Second thing. I happened to have married homo economicus. She l*o*v*e*s cognitive loads, because they tend to redistribute wealth from less sophisticated customers to her, with the retailer sharing in the surplus. She's never happier than when the car dealer starts to look uncomfortable.
when choice is too much we say eat the rich