The $23 Million Book and the Rise of Robot
Retailers:
Imagine browsing Amazon and stumbling upon a book priced at an astonishing 23 million dollars. This sounds like a glitch, right? Nope. this was AI pricing in action, caught in a bidding war itself. While this example is rare, it highlights a growing reality: AI is now the invisible shopkeeper, setting prices in ways humans never could.
But is this making markets fairer or is it pushing up prices in ways we don’t even notice. Let’s dive into the economics behind AI-driven pricing and what it could mean for your (online) wallet!
The Science of Dynamic Pricing
So, how do AI
prices get set in real time? AI pricing algorithms analyse mountains of data,
from competitor prices, demand spikes, holidays to even the weather
What might this
look like in a real-life situation? Well, an airlines flight from London to New
York cost £396 in March but soared to £1.600 in December during the peak time
of holiday travelling (Google Flights,
2025). Or if you’re
into technology – Google Pixel bundles dropped to £250 in December to clear old
stock after new models launched
This AI pricing strategy sounds pretty good, right?
Businesses love to use AI pricing because as you can imagine, AI reacts much faster than humans. Uber prices double during rush hour, something that you may have even noticed when trying to book an Uber back late in the evening. It is also great as a method of inventory control. AI can lower prices when stockpiles up, like post-holiday gadget discounts being a popular method of profit maximising.
But is AI pricing maximising customers benefits?
We conducted a survey within the University of Manchester, where we asked students multiple questions on AI pricing. We found that 46.8% of respondents thought AI-pricing is fair to consumers, a further statistic showed that 44.2% of respondents said they didn’t trust companies to use AI pricing ethically. There are several reasons why these results lean against AI pricing, let's take a deeper look into the negatives of algorithmic pricing.
The Dark Side of Algorithmic Pricing
AI doesn’t just set prices; it plays mind games with its competitors. For instance, when Amazon lowers prices, Walmart’s algorithms will often follow since they are in close competition with Amazon. In economics this could be described as signalling, Amazon lowers their price so for the market to remain competitive, Walmart will follow.
In the survey we conducted, 62.3% of students believed that AI pricing algorithms do make markets more competitive – to some extent this is of course, true. However, sometimes it does the complete opposite.
In 2023, the
FTC sued Amazon for allegedly using AI to coordinate price hikes with rivals,
without any human conspiracy
Some argue that AI pricing is extremely unfair because it allows companies to raise prices in a way that reduces consumer welfare, in other words, we may not be getting the best deal possible! There are also concerns about the lack of transparency in these pricing models, in our survey we asked how transparent AI-driven pricing is for consumers and 45.5% of students responded that it was somewhat unclear with a further 29.9% responding that it was very unclear. Within economics, this displays the concept of asymmetric information and market failure – which arises when consumers aren’t fully aware of the information needed to make choices that will best suit us.
The Manchester Student Survey – What Did
Students Have to Say?
AI pricing might be an obvious discussion point for someone who has a keen interest in economics, but we wanted to know what non-economist students had to say about this topic.
The
transparency crisis is something that stood out to us, more than half of
students finding AI prices to be very unclear, and an additional comment being
“I spend hours comparing prices – it's exhausting”. This does raise a question
– is AI pricing beneficial if consumers must sacrifice their time searching for
the best price.
Only 22% of students trust companies to use AI ethically, and students’ biggest fears were higher prices for consumers and unfair treatment of certain groups, in economics we call this price discrimination – which can be used to benefit certain groups but in the case of AI it may introduce inequality and consumer exploitation. There is no wonder that our survey results leant more towards a fear of AI pricing, consumers want the best price possible, and it can be hard to trust a system that is built upon profit maximisation. The question is, who really wins this pricing game?
Who Wins the AI Pricing Game?
AI can boost efficiency but risks hindering consumer welfare, the difference between what you’re willing to pay and what you pay. AI isn’t inherently evil – it is a tool. But an insightful comment left from one student was “If we let robots set prices, whose holding them accountable?”
Whilst there are obvious benefits to businesses using AI pricing, it must be in the best interest of the consumer. Having said this, AI pricing is here to stay, but its impact depends upon transparency and regulation. 74% of students demand oversight, the question isn’t if we’ll regulate AI pricing – it’s how.
So, what do you think? Should algorithms decide what’s fair, or should humans keep control?
References
camelcamelcamel. (2025, March 9). Google Pixel 7a
and Pixel 30W Charger Bundle . Retrieved from camelcamelcamel:
https://uk.camelcamelcamel.com/product/B0BYZFBQR1?context=search
Federal Trade Commission v Amazon.com Inc.,
2:23-cv-01495-JHC (United States District Court Western District of
Washington November 11, 2023).
Flights, G. (2025, March 9). Flights from London
Heathrow to New York JFK. Retrieved from Google Flights :
https://www.google.com/travel/flights?tfs=CBwQARoSagcIARIDTEhScgcIARIDSkZLGhJqBwgBEgNKRktyBwgBEgNMSFJAAUgBcAGCAQsI____________AZgBAQ&tfu=KgIIAw&hl=en-GB&gl=GB
Symson. (n.d.). How Does AI Pricing Algorithm
Work. Retrieved from https://www.symson.com/blog/pricing-algorithm
No comments:
Post a Comment
Note: only a member of this blog may post a comment.