Surveillance Pricing Makes AI Ticket Pricing Unfair, and It Needs Some Limits.
Imagine finding tickets for your favorite concert. Sadly, you see the price jump by $15 a few minutes later. You check again, and the price has jumped another $10. This actually happened to me when I was trying to buy baseball tickets. Why did this happen? This is partly due to dynamic pricing. Dynamic pricing means that prices change depending on the demand, supply, etc. AI can make this process faster by looking at different information and pricing items at a fast speed. In some situations, companies might even use personal information about customers for the cost of what they’re trying to buy. This can and has made things feel unfair and frustrating. A lot of people think that AI can be useful, but there definitely should be some sorts of limits for changing prices because of demand and charging certain people more than others.
Alt text: Screenshot of a TickPick sports ticket listing showing two tickets priced at $612 each.
Dynamic Pricing Raises Prices When Demand Outpaces Supply
Dynamic pricing is already becoming more common in professional sports games, concerts, and transportation. Instead of doing the normal thing and keeping one price for that specific ticket, sellers are changing the price of the tickets based on the demand they’re getting.
One example of dynamic pricing is the company Uber. Uber is a company that connects riders to drivers in their app. Uber checks things like how far the drive is, the demand for drivers at that time, and how many drivers are currently available. Uber can use dynamic pricing when there are more riders than drivers. Since there is more demand, they would obviously do that. This is why getting an Uber driver at night can cost more money because there are fewer drivers. Ubering in crowded or popular cities is way more expensive than Ubering in random places. You might notice that the cost for an Uber in Los Angeles is way more expensive than an Uber in, like, Indianapolis.
AI can make dynamic pricing processes much faster because it can look through information and set prices for the value of the seat, much faster than any human could. For example, an algorithm could look at how many people are trying to buy tickets, how many tickets are left, and how quickly tickets are selling. It can use all of this information that it has gotten to figure out how much people want those tickets and then decide whether the price should go up or down. A study called Examining the Role of Price Fairness in Sport Consumer Ticket Purchase Decisions says that, “Ticket pricing in professional sports is transitioning from a cost-based to demand-based approach.” These lines show that changing the cost of tickets is becoming more important for how tickets are being sold today.
The Federal Trade Commission(FTC) also says that businesses can use dynamic pricing. FTC states, “Businesses may use dynamic pricing strategies to adjust prices, for example, based on demand or inventory, so long as the pricing information is not misleading.” This piece is very important because even though it can be annoying, dynamic pricing is not necessarily unfair. I mean, if the price of a particular ticket has become more expensive because it’s become popular, customers should understand. The real problem is that AI is using people’s information for different customers.
You might be wondering what that means? It means that AI is making different people pay a higher price because it thinks that they’ll pay more.
Dynamic Pricing
- Price changes based on demand or supply.
- Example: If a concert has only a few tickets left, the price goes higher
- Many customers may see the same higher price.
Surveillance Pricing
- Price can change based on information about the customer.
- Example: A company uses personal information to decide what price to show to that customer
- Different customers could potentially see different prices.
Softjourn — How AI Is Transforming the Ticketing Industry
Ticketmaster Controls Dynamic Pricing While Artists and Teams Decide the Final Costs
A good case study to use for this type of article would be Ticketmaster. This is because Ticketmaster is a platform where millions of people from around the world buy sports tickets, concert tickets, and tickets for other types of events. According to an article from Ticketmaster, Ticketmaster states that the artists or teams are the ones who set the price. Ticketmaster is just the system where those tickets can be sold.
One reason why a ticket can be very expensive is obviously the demand for those tickets. If a concert features a very popular artist, the price is going to be expensive. It’ll be even more expensive if there are very limited seats to the concert. This is why customers are going to be annoyed when looking for tickets because of the high prices that they are not going to be willing to pay.
Ticketmaster said that the price shown up front includes most of the fees and, of course, the ticket. Some fees that might not be shown up front are sometimes delivery fees, depending on whether you chose a specific delivery method, and sometimes taxes. Some tickets on Ticketmaster could also be resale tickets. The price could either be higher or lower than the original price, but Ticketmaster clearly labels them as resale tickets so that you won’t be confused about whether they were original. According to Ticketmaster, the event organizers are the ones who set the starting price of the tickets, and the price can change depending on the event and how the organizer decides to price the tickets. However, this information is coming from Ticketmaster itself, so it just explains how they say their pricing works. It doesn’t prove whether or not Ticketmaster uses surveillance pricing. Regarding things like the Ticketmaster case study, even though Ticketmaster said that they don’t have many hidden fees, other sellers probably do. These extra fees make tickets a lot more expensive, so be careful.
Source: Ticketmaster — Interactive Seat Map
AI Pricing Becomes Unfair When Companies Use Personal Data to Set Prices
The FTC has also studied surveillance pricing. Surveillance pricing is what we talked about earlier. It’s pricing that companies use, or make AI use, your personal information to help set your own price. FTC research says, “Companies that collect or obtain individualized information about their actual or potential customers can potentially use a variety of features to target prices to specific consumers and charge particular groups higher prices or use those features to generate greater profits.” This means that businesses could offer the item or experience that you’re trying to get for more money than it’s worth.
However, it’s important for you to note that only some companies are doing this. In this article, the FTC called the market that it was studying an opaque market. I’ll be honest, I didn’t really know what this meant, but an opaque market is a market where you can’t really see the price of what other people paid for the item and the exact product features. The FTC also said that the opaque market involved third- party intermediaries that would use advanced technology and your personal information.
A worrying passage from the article said, “… by third-party intermediaries that claim to use advanced algorithms, artificial intelligence and other technologies with personal information about consumers … to categorize individuals and set a targeted price for a product or service.” The scary part of this is that those third-party intermediaries are calculating the maximum amount that you would pay based on your personal information, which is the price that you receive. You could be paying more than someone else, but you think that it’s just in demand when it could actually be based on your personal information. This can make things very complicated. There is still a gap in the research because it is hard to know exactly how many and what companies are using personal information to set prices for different customers. A lot of these systems happen where you can’t see them, so customers might not even know that their information is being used. More research is needed to figure out what common surveillance pricing really is and whether people think these pricing systems are fair.
When Customers See Unfairness, Companies Lose Trust and Sales
Fairness is important to people. It can give them trust in the company. Some customers might not care about how much something costs, but they probably care about why it costs that much. This is because they want to know for sure that they’re putting their money into the right place. The Sport Marketing Quarterly study says, “Perceptions of unfair pricing practices can lead to dissatisfaction and negatively affect purchase behavior.” This also means that if people think that tickets or something else is worth more than it’s worth, they’ll not buy it. If they really wanted to go to a concert or game or just wanted that item but could not get it because of the raised price, they’ll probably have a grudge against that company, whether it’s a concert, ticket, or a collectible company. This might cause them not to want to shop or buy anything there ever again. This matters because if this happens too much, companies won’t have enough revenue or profit. This is why you don’t want to make a system where customers feel like they’re getting scammed.
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Another thing that could happen is that one company is using these high-priced items, but another one is staying the same or is cheaper than the first company with the same items. Everyone is obviously going to go to that company even if it’s just a little cheaper than the other company. I mean, who wouldn’t? You would save a couple of bucks. This means that this company is going to generate much more revenue than the other company. The other company could even have to close its business if it doesn’t have many customers left.
AI Pricing Needs Limits
I feel like companies should still use dynamic pricing because it’s obvious that if something is in demand, it would obviously cost more than a random artist’s concert with a bunch of empty seats. It might also be more expensive than it was at the start, depending on what the artist or artists do, but I think it speaks to a lot of individuals that they should ban surveillance pricing. It’s just unfair for a ton of people to be paying a different price than other people even if they don’t know that. You want to treat every person the exact same, no matter who they are.
Something else that companies should consider is explaining how their pricing systems work. They would need to explain this in a way that normal people would understand. Customers deserve to know whether the pricing is based on demand, the amount left, etc.
Prices Will Likely Change Faster as AI Improves
As AI becomes stronger, I think that companies will start to use more AI pricing, since AI can process information faster than humans can. Most companies are probably going to use AI pricing for things like shopping, tickets, and transportation.
My hypothesis is that prices will become faster and might be more expensive in the future when AI improves. A way to test this would be to track the price of tickets for the same event through different days. You could take notes of the price at different times and see how often it changes and how much it changes. Then you could compare this with the amount of demand to see if the prices are changing more quickly as the demand changes faster. Even though surveillance pricing might not be fair, it’s not really up to us if companies keep on using it. Faster prices might mean that AI doesn’t change things like a few times a day, but can change prices almost instantly when it detects that the demand has changed.
The best thing that customers can do is make sure that they know what information is being used to make the price expensive or perhaps even cheap. A good idea that could make companies more money is making sure that their customers understand how their pricing works. This will make customers feel more trusted in that company, and will probably shop there a lot more.
How AI Is Used Matters More Than Whether It Is Used
All in all, AI can be a very useful tool for companies because of its quick analysis and helpfulness in changing prices due to demand and supply. As we know, Ticketmaster and Uber are two companies that use pricing systems that change based on demand, and there are many more. In a couple of years, there might be hundreds more.
The main question for this whole topic isn’t about the pricing at all. The biggest question is how it should be used. Even though I’ve said this many times, companies need to make sure that their technology is understandable. It’s just so important that customers know what and why they are paying for something.
As consumers, we should absolutely pay more attention. Before buying a ticket, buying a product, or using some sort of item or transportation, we should look at the price and see if it has changed by a significant amount. If it did change, we should think about why and whether it’s really worth the money that we are using to pay for it.
Sources:
- FTC Surveillance Pricing Research Summaries (PDF)-
2. FTC — Rule on Unfair or Deceptive Fees
3. Examining the Role of Price Fairness in Sport Consumer Ticket Purchase Decisions
Published in Sport Marketing Quarterly (2016), by Stephen Shapiro, Brendan Dwyer, and Joris Drayer.
4. Ticketmaster Case Study
About the Author
Hi guys, my name is Aaryav Chinta, and I am an 8th-grade student in Marin County. I love numbers, which is why I am interested in business and the progress and changes of AI. Something fun about me is that I absolutely love sports. I especially love basketball, baseball, and watching football. I love looking at real-life problems and trying to figure out how it affects people and how to potentially solve them. I wrote this article because I have experienced dynamic pricing and surveillance pricing when trying to buy sports tickets for a baseball game. I wanted to tell you how AI pricing is becoming way more common than it was earlier, and whether it’s fair for companies to do it.
Questions for You
- Would you be okay paying more for a ticket if demand was very high?
- Would you like to know if your personal information affected the price that you were shown, and how much it would have normally cost?
- Do you think dynamic pricing is fair?
- Do you think surveillance pricing is fair?
- How much personal information should companies be allowed to use when setting prices?
What do you think? Leave a comment with your answer to one of the questions above and explain why you think that way.
