Just dipping a toe into the world of dynamic pricing, Disney announced that what you pay depends on when you visit…but only for its 1-Day tickets in Florida and California. Starting yesterday, you could select a Value, Regular or Peak Day price. Their slightly lower Value price is designed to attract more visitors on less popular days whereas the Peak price is supposed to cut the vacation crowds. Disney says its goal is to “spread out visitation.”
At the Disney website, the new option occupies a tiny spot on one of their ticketing pages:
With dynamic pricing, Disney is joining a growing number of firms that are recognizing their pricing power.
Referring to prices that respond to and shape demand, dynamic pricing means firms can vary what they charge. At certain restaurants like Alinea in Chicago, Tuesday’s 5:30 reservations are cheaper than 7:30 on a Saturday evening. Distinguishing between leisure and business travelers, the airlines’ dynamic pricing models know that the people who have to fly on a certain day will pay more than those with a choice. And now, we even have Amazon changing prices by the minute, electronic sensors on highways basing fees on traffic, and of course, Uber’s surge pricing.
Perhaps though we have just returned to where we began.
Sort of like Amazon, before the 1870s the price for the same item varied. In London during the early 19th century, store clerks who knew what was high, what was low and what would generate a profit were prepared to haggle. Time consuming, the process meant every customer could have a different price.
But then we had the invention of the 19th century department store. Think New York’s Macy’s. It would have been impossible and impractical to train hundreds of employees to negotiate a price for thousands of items. The result? The price tag.
Our Bottom Line: Pricing Power
Pricing power is shaped by the market in which a firm competes. Whereas farmers in perfectly competitive markets are price takers because the market dictates what they charge, in monopolistic competition, firms have some power and with oligopoly, even more. For that reason, I found it especially interesting that the announcement at the Disney website was almost hidden by sentences about enhanced attractions and growing demand. As an oligopoly, their pricing power is potentially considerable.