Last year, the CMA launched an investigation to see how dynamic pricing is used across the economy. This was largely due to the debate about the Oasis ticket sales which was raging at the time, but don't look back in anger on all that fuss, because dynamic pricing was not actually used during that ticket sale. The CMA's investigation covered a range of sectors and it has now reported its findings.
The CMA's findings
Some might say - and the CMA does say - that dynamic pricing can be consistent with effective competition and good outcomes for consumers. For businesses, dynamic pricing can help them make better use of their capacity, invest in creating new capacity and improve efficiency. For consumers, if they understand how prices might change and can be flexible, then they may be able to take advantage of a better deal, such as by taking a flight at a different time when it's cheaper. There is even the potential for a wider benefit, because if flights fly with a higher load factor, or more bums on seats, then the amount of CO2per passenger kilometer will be reduced. Although if the flight is supersonic, any environmental benefit is definitely maybe.
However, the CMA also says that dynamic pricing can lead to poorer outcomes in certain circumstances, such as when consumers are confused or concerned because prices change rapidly, and they are unsure why. The CMA says it is more likely to have concerns about the use of dynamic pricing if:
- Consumers don't know that dynamic pricing is being used or how it may affect prices, so they cannot make informed decisions.
- Consumers feel pressure to make quick decisions because prices may rise suddenly.
- Vulnerable consumers, such as those with disabilities or low media literacy, are particularly disadvantaged and end up paying higher prices than others; and
- Dynamic pricing is used to obtain or maintain market power or to discourage new entrants into a market, which results in higher prices, lower output and harm to consumers, businesses and the UK economy.
CMA guidance
The CMA has now issued guidance for businesses, and we set out the key principles below.
The CMA tells businesses to be transparent about pricing. Traders shouldn't assume that their customers are aware of how they approach pricing or understand what that means for them. How and when dynamic pricing is used can vary considerably between sectors – and this can be confusing. Transparency about how a trader approaches pricing is therefore a good way to help build consumer trust – especially if that approach might be unexpected.
Traders should also be clear that prices can change. The CMA emphasises that businesses shouldn't create the impression that a specific price is fixed or guaranteed if prices are actually changing. As a consequence, traders should consider whether they need to tell people upfront that prices can change and are not static. In addition, traders must ensure that any marketing of prices doesn't become immediately out of date.
Businesses should also think about what information consumers need about pricing at key points in the customer journey. They should be able to make choices that are in their best interests, for example, by planning their purchases to get the best deal. This information might include an explanation of what makes prices change, such as whether prices go up the closer to the booking date when the purchase is made, or the range of prices including the minimum and maximum amounts. Traders should also ensure that information is also presented at the point in the journey where it is most relevant, for example, when consumers are making decisions about which products to view or buy.
Businesses also need to present information clearly. This involves looking at factors such as the font size, positioning and colour of text. Important information is unlikely to be clearly and prominently provided if it is in the small print, or only accessible through a hyperlink that could be missed or not opened.
It is also important to explain important terms from the perspective of the consumer. Traders should also explain things in clear language that customers understand and possibly provide examples.
The CMA also highlights that traders need to consider vulnerable consumers and how they might be affected by particular approaches to pricing, and what extra help and information can enable them to get the best possible deal. This depends on the context - e.g. products and types of consumers - as different practices, and even the same practices in different circumstances, may have different effects depending on the type of consumer they reach or affect.
In addition, the CMA tells traders to ensure that consumers are not put under undue or unfair pressure to make snap decisions if prices are changing, particularly if those changes happen quickly and often. This may be particularly important if, for example, prices might be changing whilst they are in an online queue.
Finally, traders should not change prices while customers are paying - they should make sure that people are told what they will actually pay at the right point in the purchase process, for example, in an 'invitation to purchase' or when they click 'buy', and traders should not change the price while consumers are in the process of paying.
The CMA has also said that it will use its new powers under the Digital Markets, Competition and Consumers Act to deal with pricing issues, and highlights that sector-specific interventions might also be needed and may be more useful than more changes to consumer law.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
