A recent ABC investigation into monopolistic practices in the live music industry, coupled with views shared by Australian Assistant Treasurer Stephen Jones, has ignited a debate on pricing methods like dynamic pricing, surcharges, and subscription traps.
The investigation exposed how major players in the live music industry leverage their market dominance, jack up ticket prices, impose additional surcharges, and adjust pricing based on fluctuating demand. This revelation has raised concerns, particularly amidst mounting cost-of-living pressures.
While the public’s frustration with rising prices is understandable, it is an oversimplification to attribute all the blame to specific price mechanics. To truly assess whether these practices are inherently exploitative, a more nuanced exploration of dynamic pricing, surcharges, and subscription traps is required—beyond the realm of political soundbites.
Is dynamic pricing unfair?
Dynamic pricing refers to the flexible adjustment of prices based on real-time demand and a consumer’s willingness to pay. This model is prevalent in industries like airlines, hotels, and entertainment, where the objective is to maximize capacity utilisation. Other sectors, such as utilities and cinemas, also employ dynamic pricing to shift demand, offering lower prices during off-peak periods.
Contrary to popular belief, dynamic pricing does not automatically result in higher overall prices. The average price paid by consumers depends on how the price tiers are structured and the level of market demand. In fact, dynamic pricing can, at times, benefit consumers, especially those with flexibility in their purchasing decisions.
A dynamic price is generally considered fair in sectors like transportation, hospitality, and events, where transparency and certain predictability allow informed choices. However, when applied to essential services like healthcare or public transportation, fluctuating prices are seen as inequitable and restrictive.
For live music, frustration with high ticket prices stems more from the initial price setting rather than the dynamic mechanic itself. A static pricing structure that sought to achieve similar profitability would result in equally elevated prices. Thus, the issue is less about dynamic pricing and more about the overall price strategy in the industry.
The next contentious topic – surcharge pricing – involves separating a core product from its additional services, such as charging delivery fees for online purchases or baggage fees for flights. This allows companies to advertise lower base prices, enticing consumers with affordable options, while earning revenue from optional services. Issues arise when surcharges become inflated or are not proportionate to the underlying cost of providing these services.
In the live music industry, consumers base their purchasing decisions on an advertised ticket price, only to discover that surcharges, sometimes unrelated to any clear service, are tacked on. This intransparency is deceptive and emphasizes the need for clearer rules.
Finally, subscription traps occur when consumers face hidden barriers to cancelling their subscriptions. While fixed-term contracts with early exit fees may be acceptable if clearly communicated, some companies employ ambiguous clauses that complicate cancellations.
For example, a service may advertise a two-week cancellation notice, but restrict cancellations to the end of each quarter, trapping consumers longer than anticipated. Such practices exploit consumers’ lack of awareness of these terms.
Conclusion
Ultimately, dynamic pricing, surcharges, and subscription traps are not inherently unfair. Much of the public’s frustration comes from a combination of rising prices and deceptive business practices.
When applied transparently, these mechanisms can benefit consumers by offering lower prices during off-peak times and allowing greater flexibility. The real issue lies in how businesses implement these models.
Christoph Petzoldt is partner and managing director of Simon-Kucher Australia.