Deterred by the £260 cost of a return train ticket to London, one Sunderland football fan has found a cheaper way to cheer on his team at Wembley this weekend: travel via Menorca. A Ryanair flight to the Spanish island, an overnight stay in an airport hotel, a return flight to London and a cadged car ride back home work out cheaper than the extortionate cost of a rail ticket.
The experience of this Black Cats’ supporter encapsulates the costs, benefits and occasional absurdity of algorithmic pricing, now used by most train and airline companies to maximise yield. Companies can rapidly increase prices to exploit surging demand from football fans, for example. But they can also automatically lower prices to entice customers in weaker market conditions, as is the case with budget airlines.
At a time when consumers are fixated on rapidly rising inflation, price-setting mechanisms should come under greater scrutiny. But digital marketplaces present a particular challenge given so many prices are set by automated algorithms rather than slow-moving humans. Plus, speed and flexibility of service can often prove more important determinants of online purchases than price.