There’s a great bagel shop near my house that has consistently long lines on weekend mornings. This is a market failure: if the line is predictably and consistently long, then the price in dollars is not high enough. The bagel shop could charge more on weekend mornings, which makes them better off; the average customer would then pay more in dollars but less in time.¹

Higher weekend prices are an example of dynamic pricing: adjusting prices in response to spatio-temporal variation in the supply/demand balance.² Lots of things are already dynamically priced: the commuter rail is cheaper on weekends; french fries are cheaper outside Fenway Park than inside. But I’d like to see way more things be dynamically priced. When dollar prices are too low, [potential] buyers end up paying other costs instead: shortages, waits, congestion, etc. When prices are too high, potentially mutually beneficial exchanges don’t occur.

A highly non-exhaustive list of places where dynamic pricing seems promising:

• Restaurant reservations
• Cafe / restaurant / etc. menu prices
• Roads, i.e. we should have congestion pricing
• Some kinds of appointments, especially low stakes appointments like haircuts. I’m uncertain about dynamic pricing for healthcare or public services.
• Access to fragile natural ecosystems

Dynamic pricing is contrasted with discriminatory pricing, i.e. setting prices based on attributes of the potential buyer: I will sell Alice this cookie for a dollar, but for you, two dollars. Discriminatory pricing shifts transaction surplus to the seller. Say I have a cookie I want to sell. I’ll accept any price above \$3; below that price I’d rather eat it myself. You’d like to buy my cookie for any price up to \$5; above that price you could have ice cream instead. Any price between \$3 and \$5 creates surplus for both of us. But if I can perfectly price discriminate, I can set the price arbitrarily close to your reservation price of \$5 and grab all the surplus for myself (assuming you still buy).

It’s probably not that big of a deal if a single seller subject to robust competition tries to price discriminate; buyers can go elsewhere.³ Indeed, this probably means a seller in a crowded market⁴ rationally should not try to price discriminate. Even so, I’m tentatively opposed to price discrimination:

• It gives me the moral icks, mostly because it’s a form of discrimination. The icks, moral or otherwise, are not a uniformly reliable way to classify the world into good and bad: see vaccines, GMOs, global supply chains, etc. Yet a heuristic of “treat people the same; don’t discriminate” looks pretty good for predicting some of the moral progress of the last centuries: women should have the right to vote, racism is bad, don’t hate foreigners. So I guess I’m inclined towards discrimination=bad as a sane default heuristic until convinced otherwise.
• There are individual instances where particular sellers don’t face competitive forces. Should the only hospital in a hundred mile radius be allowed to price discriminate when someone shows up needing emergency care?
• A world with widespread effective price discrimination is a spooky world. Buying things is barely worth it because sellers charge personalized high prices and capture almost all surplus. Earning money isn’t obviously that helpful if it increases your willingness to pay and thus prices you experience. To be clear, this caricatured world is unlikely to materialize. Even so, instances of price discrimination seem to tear ever so slightly at the social fabric and move us towards a worse world.

I don’t have high confidence that all discriminatory pricing is high. Maybe more seller surplus has good second order effects, like making more sellers. Maybe the rural hospital should be allowed to price discriminate so that we have more rural hospitals. Maybe there are obvious effects I’m missing since I am, in fact, not an economist!

For years, I’ve toyed with the idea of doing a midlife career switch and running a tiny one-man sourdough pizza shop (working name: Workshop Pizza). The actual likelihood of this is…maybe 25%?…but it’s fun to imagine the details. And for sure, my imaginary Workshop Pizza charges more for pizzas on Friday night than Tuesday afternoon.