More questions than answers: looks like a new day is dawning in e-commerce. Delta Airlines has successfully executed dynamic, personalized pricing on 3% of its sales.
Its, shall we say… concerning. Displaying different prices on the same goods to different customers has an elevated risk of Price Discrimination. Amazon took the brunt of it back in 2000 when they spun up a test of dynamic pricing. The thing is, they showed different prices to people that were demographically different, sparking price discrimination claims.
https://abcnews.go.com/Technology/story?id=119399&page=1
Research done on more recent attempts at dynamic pricing has shown that the worst deals were given to the poorest people. “For example, a study of broadband internet offers to 1.1 million residential addresses showed the worst deals given to the poorest people.”
https://consumerwatchdog.org/wp-content/uploads/2024/12/Surveillance-Price-Gouging.pdf
So the risks from outside the org (demographics) and from inside the org (guardrails) are substantial. Reputational and regulatory risks could both be substantial but would it be existential? Or could they test and iterate their way through it?
Delta is happy to hype the new innovation for investors, but failed to tip off their strategy. Are they showing someone the lowest possible price to entice them to buy and guarantee full planes and safe margins? Or are they showing people the highest prices to test price elasticity and capture maximal value, even if that means there are a couple empty seats?
This is a compelling example of how AI will be working its way into complex systems and consumer products. By integrating An AI-driven calculation into real-time price modeling, Delta has successfully straddled the chasm between two kinds of companies: operational maximizers and profit drivers. Maximizers try to fill every seat, even if it means losing a bit of value, e.g., broadway theaters that give away tickets at the last minute. Profit drivers are willing to have some some slack in the system but make it up on the back end by capturing greater profits from those that do buy tickets. Leveraging the real-time analysis that is now possible, Delta is able to stride between both types, presumably for maximal benefit.
So what do you think, if you have read this far? Will this lead to smarter competition? Or is it the latest way that airlines will be squeezing customers without improving services?