Is dynamic pricing, underhanded or unethical? No, according to faculty members in Wharton's marketing department. They say such pricing -- also called targeted pricing, flexible pricing, tailored pricing or, to use the phrase employed in the Annenberg study, discriminatory pricing -- is customary, an essential tool for companies, and often beneficial to individual customers and society as a whole. Does dynamic pricing sometimes upset consumers? Research shows that people do get disturbed if they learn that they paid more than someone else for the same item. But that happens because they often do not know much about the factors that go into a company's decision to set prices, are reluctant to ask for a lower price, or find bargaining distasteful. And, of course, the people who get bargains are not at all likely to be disappointed or feel exploited.

"Dynamic pricing has always been with us," says Wharton marketing professor Peter Fader. "Think of the classic hagglers in the market of a Middle East bazaar. People will pay very different prices for the same bolt of fabric. This is more the norm in transactions than fixed pricing. Fixed pricing is a much later phenomenon and it's an artificial one. Companies must engage in flexible pricing practices in order to honor their responsibilities to their shareholders. If retailers charge a flat, low price to make everyone happy, they're leaving a lot of money on the table."

"There is nothing really new here," agrees Wharton marketing professor Z. John Zhang. "The only thing new is that the Internet has given companies so many different ways to set prices and adjust prices." Notes Stephen J. Hoch, chairman of Wharton's marketing department: "People are exposed to dynamic pricing all the time. Do they understand [everything about it]? No. But they understand senior citizen discounts and student discounts."

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