Dynamic Pricing According to Rincon,

Dynamic Pricing

According to Rincon, dynamic pricing refers to fluid pricing between the buyer and seller to better reflect the real-time supply and demand dynamics of products, rather than the more traditional fixed pricing. Today, commonly used models for dynamic pricing include auctions, reverse auctions (where buyers set the price they are willing to pay and then sellers bid for their business), trading exchanges, price matching, quantity pricing, and group pricing systems. Examples of dynamic pricing sites include eBay and Priceline.com. Dynamic pricing works well in electronic commerce when customers understand the features and quality of the product are and the main variables in the transaction are availability and price (Allen, 2000).

In the above sited examples of dynamic pricing, customers are knowingly participating in the process. However, dynamic pricing also allows online companies to adjust the prices of identical goods to correspond to a customer's willingness to pay without the consumer's knowledge (Weiss, and Mehrotra, 2001). Electronic commerce retailers such as Amazon.com have experimented with gathering information about customers such as detailed information about customers (shopping history, spending patterns, credit card accounts, etc.) to engage in online price discrimination (Ramasastry, 2005). For instance, Amazon has used dynamic price to offer discounts to customers comparing prices on a bargain hunter Web site and to offer special prices to first-time customers (Ramasastry, 2005). To date, online price discrimination based on information about individual customers has been limited primarily by consumer resistance to this practice. A University of Pennsylvania survey revealed that eighty-seven percent of people believed the practice should be illegal (Ramasastry, 2005).