Dynamic Pricing

• The Bottom Line: Dynamic pricing is a strategy where a company continuously adjusts the price of a product or service in real-time based on demand, supply, and other market factors; for a value investor, it is a powerful, real-world test of a company's pricing_power and the durability of its economic_moat.
• Key Takeaways:
• What it is: Instead of a fixed price tag, prices fluctuate automatically, much like airline tickets before a holiday or Uber fares during a rainstorm.
• Why it matters: A company that can successfully use dynamic pricing without alienating customers likely possesses a strong competitive_advantage, allowing it to maximize profits and generate superior long-term returns.
• How to use it: Analyze how and why a company uses it to judge whether they are strengthening their business for the long term or simply chasing short-term profits at the expense of customer trust.

Imagine you're walking into your favorite local coffee shop. On Monday, your latte is $4.00. On Tuesday, a rainy and busy morning, you walk in and the same latte is now $5.50. On Friday afternoon, when the shop is empty, the price drops to $3.00. That, in a nutshell, is dynamic pricing. It’s the opposite of the familiar, static price tag you see at the supermarket. Dynamic pricing is a strategy where prices are fluid, not fixed. They change—sometimes minute by minute—based on a host of factors crunched by sophisticated algorithms. These factors can include:

• Current Demand: Are a lot of people trying to buy the same thing right now? (Think Taylor Swift concert tickets the moment they go on sale).
• Supply: How much of the product or service is available? (Think the last two window seats on a flight to Hawaii).
• Time: How close is it to the event or time of use? (A hotel room is more expensive when booked the day of arrival).
• Competitor Pricing: What are other companies charging for