Dynamic & Algorithmic Pricing: When Prices Change in Real Time

We’re all used to going into a store and immediately knowing the price of an item. This is the genius of price tags: it takes the guesswork out of the equation. But what if those prices changed from day to day or person to person? That is what algorithmic pricing, a type of dynamic pricing, is, and it’s something every shopper should be aware of.

Whether you’re shopping online or in person, businesses have more ability to gather information on us than ever before. That isn’t necessarily a bad thing, as it can help companies address consumer problems or make the shopping experience more enjoyable.

I cover these data collection methods in-depth in my article, How Businesses Use Sales Tracking Software to Observe You.

This data collection, however, also opens the door to novel pricing methods that we as consumers have never had to manage before. As I’ll cover, some forms of dynamic pricing are far from new, whereas other forms are difficult to notice unless you’re looking for them.

What Is Dynamic Pricing?

To understand dynamic pricing, we first need to understand static pricing. Thankfully, it’s a relatively simple concept. Static pricing, also called a fixed-price model, means the business charges the same price for a product or service regardless of market conditions. It can benefit both the consumer and the company. The consumer knows what to expect, and it’s easy for the business to manage. While many cultures still engage in bartering, price tags emerged among Quakers around 1870, who believed it was morally wrong to charge different amounts to different people. This decision also coincided with the growing popularity of payment methods like banknotes and credit cards. (For a deeper dive on the history of payment methods, check out my article.)

Six Types of Dynamic Pricing

Now that we’ve got a good understanding of static pricing, let’s dive into dynamic pricing. There are 6 different types:

Type	Definition	Example
Time-Based Pricing	The price changes depending on the day, week, or month.	Candy is more expensive right before Halloween or Valentine’s Day, and goes on sale after these holidays.
Peak Pricing	When pricing increases because of short-term peaks in demand.	Uber may charge you a surge price if you’re trying to get home at rush hour compared to mid-day.
Penetration Pricing	This happens when businesses lower prices when introducing a new product or service to attract new customers.	This actually happened to me yesterday: a yoga studio I’ve been going to emailed me to let me know that Founding Memberships are live. These memberships are offered at discounted monthly rates, as it’s the first time they’ve offered a recurring expense (as opposed to paying for a class pack).
Competitive Pricing	Competitive pricing involves a business evaluating how a competitor prices the same or similar product/service and adjusting to match or beat that price.	Think Target’s price-matching guarantee.
Segmented Pricing	This type of pricing involves charging varying customer groups different amounts for identical items or services. We’ll discuss this variant in depth.	If you’re a student or veteran, you may get a discount at participating stores.

While it can be annoying as a consumer to face price increases, hopefully it now makes more sense why businesses do it. It’s also clear that some types of dynamic pricing, like competitive pricing, help us, while others are forms we’re already familiar with. Uber, for example, shows you what the new surge price is before you pay. There is a newer 7th type of dynamic pricing that is neither expected nor communicated clearly: algorithmic pricing.

When Algorithmic Pricing Shows Up Unexpectedly

What Is Algorithmic Pricing?

Imagine this scenario: you’re planning to have a pizza night with your friend, so you go to Instacart to order flour, tomatoes, tomato sauce, and mozzarella. Your roommate just picked up some tomato sauce last week, so you have a general idea of what price to expect. However, when you get to checkout, you see they’re charging you 70¢ more for the same item at the same grocery store.

This isn’t fiction: it is happening across the US because of algorithmic pricing. An excellent definition of algorithmic pricing, created by a research team in 2019, defines it like this: 

Algorithmic pricing is a pricing mechanism, based on data analytics, which allows firms to automatically generate dynamic and customer-specific prices in real-time. Algorithmic pricing can go along with different forms of price discrimination (in both a technical and moral sense) between individuals and/or groups. As such, it may be perceived as unethical by consumers and the public, which in turn can adversely affect the firm.

It is arguably the final boss of the dynamic pricing categories and involves changing the price based on the following variables:

• Statistical and probabilistic data on potential consumers
• Prices that competitors are offering
• Information on the purchaser, including demographics and interest in the item
• Data on the seller’s business, including whether they will obtain new stocks soon, or their target selling velocity 

While dynamic pricing models have been around for as long as people have priced things, there has never been so much data gathered about us and our behavior as there is now. It is this monumental amount of data that has enabled algorithmic pricing. As the LA Times points out in an article from 2000, “these traditional methods used to calculate prices are sledgehammers compared with the Internet’s scalpel.” Let’s go through some examples:

Instacart’s Groceries

In 2025, Consumer Reports, in tandem with Groundwork Collaborative and More Perfect Union, investigated pricing discrepancies when shopping for groceries on Instacart. Their investigation found that, as a result of Instacart’s AI-powered pricing experiments, identical prices varied by up to 23% from customer to customer. Some of the country’s largest grocery retailers use Instacart’s software, which includes Target, Sprouts Farmers Market, Kroger, Costco, and Albertsons. It is this software that would be responsible for you seeing a different price for tomato sauce than your roommate.

The journalists spoke with Len Sherman, an adjunct professor and executive-in-residence at Columbia Business School. He told Consumer Reports, “All of us, without our knowledge, are being conscripted in this enormous and growing social experiment being conducted by companies across a wide range of industries.”

As of December 22, 2025, Instacart is no longer providing the technology that grocery stores used to charge shoppers varying prices for the same items at the same time. Could this be because the Federal Trade Commission (FTC) launched an inquiry into Instacart’s AI-based pricing methodology, called Eversight, on December 18, 2025? I believe so, and also to try to avoid even more bad press. (Speaking of bad press, as of May 2, 2026, Instacart has since removed any trace of this tech on its website.)

Staples’ Staples (And More)

In 2012, The Wall Street Journal investigated price differences on Staples Inc.’s website, noting that prices varied by customer location. In addition, the journalists noticed that Staples’ prices changed depending on the shopper’s proximity to a competitor brick-and-mortar store (OfficeMax or Office Depot). They stress that “[​​using geography as a pricing tool] diminishes the Internet’s role as an equalizer,” and I couldn’t agree more.

Amazon’s DVDs

In 2000, Amazon had to issue a public apology after consumers caught on to its algorithmic pricing for DVDs. Prices ranged from $22.74 to $26.44, depending on whether or not someone used electronic tags and cookies. At today’s prices, that $3.70 difference equates to $6.92 now, which is staggering.

We’re not necessarily getting the best price for something – we need to do thorough research online to find the best price. With everything else in our lives that requires careful research, from finding clothes with natural fibers to figuring out what’s AI and what’s real, it can feel exhausting simply to exist. Is that just a feeling, though, or is this happening to everybody?

Is There a Psychological Impact of Algorithmic Pricing?

Short answer, yes. 

The long answer is that it isn’t as cut-and-dry as you might think. 

On the one hand, it should raise red flags that most customers aren’t even aware that their behavioral data is being logged and analyzed to help businesses better predict their preferences and habits. Further, since businesses know that customers would rebel against this level of intrusiveness, many are obscuring their algorithmic pricing structures with long privacy disclaimers. And when consumers do find out, they feel greater betrayal and lower perceived fairness than with pricing structures that are less algorithmically driven.

The LA Times interviewed Mike May, an analyst from Jupiter Communications (now Forrester Research), back in 2000 about the Amazon DVD pricing debacle. His quote resonated with me: “Amazon knows who has the ability and perhaps the incentive to pay more based on demographics, on purchasing history, on income and urgency. The variable that they’re deficient on [sic] is which customers won’t mind paying more. They don’t know the level of outrage.” (Emphasis added by author.)

On the other hand, previous research on algorithmic pricing from 2006, 2008, and 2013 highlights that price-framing tactics could mitigate customers’ feelings of unfairness and boost their trust in the company. An example of an effective price-framing tactic is presenting a consumer with a special discount. The surprise at a reduced price thus obscures the personalized pricing that’s happening.

Ethical Considerations for Businesses

Like Meryl Streep and Alec Baldwin in 2009, it’s complicated. Businesses should be more transparent with us when they’re using algorithmic pricing. When they are, research has demonstrated that it decreases negative perceptions of fairness. They should also consider the ethical balance between making more money and seriously affecting people’s ability to afford to live. Perhaps the algorithmic pricing experiment should wait a few more years until inflation is better under control and the economy is doing better. 

With that said, what can we do about it now as consumers?

How To Address Algorithmic Pricing

The biggest thing you can do to avoid paying extra due to algorithmic pricing is to shop around. Visit other websites to see if the prices are consistent. In addition, I suggest shopping in Incognito Mode on Chrome or Private Browsing in Safari. I personally do this all the time, as it doesn’t collect history, cookies, or other site data on your device. Once I know what I want to buy, I typically copy the link over to a regular browsing window, or pay straight from my Incognito Mode window if I can.

You can talk about algorithmic pricing with your friends and family and share this article with them. If more people are aware of it, it could encourage businesses to be more transparent and even encourage states to create more legislation to protect us.

That leads me to my last point: take solace in the fact that lawmakers from across the country are taking steps to address algorithmic pricing and ensure businesses are charging us fairly. Just a few days ago, Maryland introduced legislation aimed at preventing “dynamic, surveillance data-driven grocery store pricing.” In addition, California introduced a bill to stop algorithmic pricing in housing, Vermont introduced a bill to do the same for retail, and Illinois introduced a bill to do the same for ticket pricing.

Algorithm, Meet The Beta Rhythm

The beta rhythm describes our brainwave activity when we’re alert and practicing active thinking. It can feel uncomfortable to learn about dynamic and algorithmic pricing as they challenge the basic expectation that prices should be the same for everyone. Awareness, though, is the first line of defense: it’s better to be alert and cognizant of what’s going on than not. Further, to fight the negative aspects of algorithmic pricing, we must stay informed about these practices and what we can do to address them. 

The Quakers invented the price tag out of a desire for fairness and a moral “right.” Those concepts don’t have to become outdated. It’s up to businesses to be more transparent and equitable.