Managing demand response is a logical economic process

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Rafael Oliver

The fairness of dynamic pricing has always been up for debate. Nevertheless, it has been used throughout our lives. Technology has only opened up a new dimension. No one could forget the habitual and historic behaviour in some restaurants during their local festivals or when – after beginning with low prices – success made those restaurants their raise their prices to the logical level. Despite the cognitive biases that make us think about rejecting a situation that we don’t see as just, no one is bothered when prices are lowered with the intention of increasing demand

The market basics are built around supply and demand. This economic law isn’t a political decision, but rather a natural law of human behaviour that balances the value of an asset with the availability of revenue.

If a factory has to pay a higher price for the overtime needed to meet the demand for its products, by raising the price, it will sell less but will earn more due to the higher revenue and the reduction in labour costs. Would anyone argue against this economic fact, which is the fruit of good management? Surely, no one with economic criteria could be against it, unless they are one of those people who only think about what suits them best at all times. How ironic!

In the era of the municipal markets and before the proliferation of supermarkets, throughout the morning, you were able to see the prices changing depending on the competitors’ stalls, the general availability of the product, and even the inclement weather (some markets were covered while others were only partially covered). Economic theory explains how prices are adjusted in agriculture. A producer plants a crop and if that sells at a good price, the remaining producers will begin to copy them until there is no business for anyone and the majority abandon it. This causes the price of that agricultural product to rise again, and thus the cycle begins anew. 

There are airlines that employ different methods to maximise their revenue. Some sell their first seats for cheap and make the last the most expensive while others sell their first seats at a high price while the last seats are very cheap. Everything is functional and fair, we just have to adapt to a new format that allows us to sense this behaviour intuitively, facilitating its alignment to our economic circumstances and the value of the offer.

The black market always appears in planned economies. Why? Because the market always opens a path; it’s only natural. The markets must adjust to supply and demand and the price is the main factor in achieving this. It’s a way of softening demand to ensure that we can all be served properly. It’s like a dance in which the adjustment allows both parties to enjoy themselves.

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