Want to know why the Washington Post is bleeding readership? Consider this editorial by Catherine Rampell, titled “Stop Your Populist Grandstanding over Wendy’s ‘Surge Pricing.’” If the poors only understood basic economics, they wouldn’t get so frazzled over something so efficient like discounting!
For those who missed out on the fireworks, a quick recap is in order. In mid-February, Wendy’s CEO Kirk Tanner mentioned on an earnings call for investors that the company would soon begin “testing more enhanced features like dynamic pricing.” Tanner had already bragged to shareholders that “there’s a massive opportunity to further unlock digital sales growth” through “segmentation and machine learning, driving a meaningful increase in personalization for our loyalty members.” Tanner noted that “AI-enabled menu changes and suggestive selling” were rolling out soon, and “The incremental sales growth we expect to deliver behind our investment in breakfast, digital, and technology will drive meaningful sales leverage in our restaurants.”
Reminder: We’re talking about Wendy’s. The fast food joint. Square patties, faux-50’s decor…you know, Wendy’s?
The AP reported on the “surge pricing” plan, which inspired some great tweets (copied below) comparing Wendy’s to the stock market—buying a Baconator on the dip, arbitrage-trading tenders at peak, and so on. It was a funny viral story representative of our bleak times, something to groan with your co-workers about over coffee in the morning. As the story became a PR liability and irked a few influential senators, Wendy’s announced that this was all a big misunderstanding: see, they wouldn’t be raising prices when demand was high, they’d be lowering prices when demand is low.
This, of course, was a non-denial denial. Dynamic pricing entails both raising prices when there’s high demand and lowering prices when there’s low demand. In economic parlance, like any price-discrimination scheme, dynamic pricing is a way for a company to extract more consumer surplus than it could with uniform pricing. Wendy’s statement merely framed the higher price point as the baseline, which makes it sound like they’re giving consumers a “discount” when there’s ow traffic at the store. But this is a phantom discount, as it’s being measured relative to an inflated (or “penalty”) price. One could just as easily frame the lower price point as the baseline, which makes it sound like they’re ripping consumers off at peak.
To summarize, Wendy’s is definitely still interested in testing price fluctuations throughout the day depending how busy the store is—in other words, depending on demand. These could be hour-by-hour or even minute-by-minute shifts, thanks to those “AI-enabled menu changes”—it’s all pretty vague right now. No matter what, this will make it harder to judge when Wendy’s raises its prices overall. Unpredictable price shifts would mean a customer would have a hard time adjusting her arrival to take advantage of the purported discount. (Contrast this to an “early bird” special which runs consistently every day from 4:30 pm to 6 pm. If something like that is all that Wendy’s had in mind…well, why didn’t they just say so in their statement after this whole thing blew up?) There’s no reason for designing such a dynamic pricing scheme besides making money, and if it’s profitable, you can bet that every other fast food joint will follow suit.
If you find that really annoying, you’re not alone. Corporate optimization techniques shaving every little pleasure in your life into a packet of data with which to squeeze ever more money out of your wallet sucks. Whoever you are, we can all agree that stuff like this makes life a little bit worse, right?
Enter Washington Post pundit Catherine Rampell, who, in a world of war crimes, legal corruption, and climate tipping points, chose to spend her valuable column space last week defending the sacred honor of manipulative fast-food pricing. “We should have higher expectations of the grandstanding greedflationists who purport to be serving the public by condemning Wendy’s pricing behavior,” Rampell scolded.
She ran through the same dynamic pricing explanation I did four paragraphs ago, but in her telling, Wendy’s was up to an undeniably good thing—those nasty progressives were just manipulating everyone to see it otherwise. “Wendy’s still plans to experiment with varying prices, and that’s totally reasonable,” she assured readers. “Think the weekday matinee deals at your local movie theater or cheaper airfares on low-traffic travel days. […] Just wait until these populists learn about ‘peak’ and ‘off-peak’ train fares!” she scoffed.
(Worth noting for some context: Rampell is a self-described beneficiary and defender of legacy admissions in elite universities. Populism—or more precisely, anti-elitism—is not exactly her preferred rhetorical mode.)
Notice that in all of those Rampell’s discounting examples of movie theaters and trains, the product being sold is limited physical space in a particular location. There’s only so many seats on a train, for example. That means the seller has hard limits on their capacity, in which case there is a plausible defense for well-telegraphed dynamic pricing: incentivizing some people to travel off-peak helps ensure enough train seats for everyone to get from Point A to Point B.
Capacity constraints aren’t much of an issue at Wendy’s. Almost everyone just grabs their paper bag and leaves, and the patty supplies aren’t shifting dramatically from hour to hour. So there’s no compelling justification for dynamic pricing here. In that case, the only reason to do it is if the company thinks it’ll net them more money.
Of course, bars run happy hours and theaters have matinee discounts just to attract more customers and make more money. (I’d argue that both of those are literally more social institutions than going to Wendy’s, but that’s a separate matter.) What’s important is that those price shifts are heavily telegraphed and predictable. The company advertises and runs the same deal from week to week, so it’s clear when the deal is on and when it’s not. Just like the “early bird” special mentioned earlier.
What was worrisome about Wendy’s was hour-to-hour, minute-to-minute, unpredictable price fluctuation based on real-time algorithmic data analysis. The company still hasn’t denied that something like this was the plan all along: Rampell assumed the term “dynamic pricing” referred to something like a daily early-bird special, but algorithmic pricing fits the concept too. It’s honestly the more natural inference from the context of the Wendy’s CEO’s tech-driven remarks.
Wildly fluctuating prices based on other people’s demand is the hallmark of securities trading, hence all the stock-market jokes. This was never a part of going to the neighborhood burger joint before, but now it can be thanks to tech innovations. A purely profit-driven mega-chain like Wendy’s has no reason not to implement something like this, absent public outcry.
This leads to what I think is the heart of Rampell’s complaint: the fact that people really don’t like something which, in terms of neoliberal punditry, is “efficient,” equity considerations be damned.
Businesses raise and lower price as demand rises and falls, which is how supply—in this case, burgers—clears most efficiently, providing the maximum possible utility to both company and consumer. Such is the neat, tidy story taught in every Econ 101 class. By this logic, shifting burger prices algorithmically throughout the day should mean that burger joints can clear their stock even more effectively. Everybody wins!
The problem is that consumers, who have the audacity to value such things as fairness, absolutely hate stuff like this. It’s strange that Rampell raised airlines as an example of dynamic pricing that everyone accepts: is there even one consumer who likes how airline pricing algorithms automatically raise the cost of a plane ticket from minute to minute as user traffic—that is, demand—increases? Is anyone happy that companies can use their information mismatch (they know how many people are actually looking at this flight, but you don’t) to pressure you into paying more than you might if you just had equal information?
Similar information asymmetries contributed to price shocks during the pandemic, a phenomenon pundits like Rampell pejoratively nicknamed “greedflation”: some corporations which weren’t actually short on supplies jacked up their prices, well in excess of any cost increase, amidst the backdrop of generally rising prices and pocketed the extra cash. In 2022, Rampell labeled any attempt to pin inflation on pricing gouging or profiteering “a conspiracy theory,” but didn’t actually refute the core thesis. Nor could she: it’s a well-established phenomenon observed by academics (under the name “sellers’ inflation”), journalists, and research institutes. Indeed, research from the Federal Reserve shows that corporate profits accounted for 41 percent of all inflation from July 2020 to July 2022. Rampell’s Wendy’s piece links back to that earlier article, and continues her campaign against “the grandstanding greedflationists.”
To Rampell, anger at a company maximizing its profits, including through manipulative pricing, is simply human imperfection. If people ultimately pay (never mind that they often don’t have another choice), they’ve revealed that their demand was greater than anticipated. That’s a pretty just-so story, and it assumes away any notion that corporations are members of a society—that even if they could exploit something, that doesn’t mean they should. One wonders whether Rampell could find fault in any corporate strategy, anticompetitive or otherwise, so long as it was deployed unilaterally. It’s as if the neoliberal pundits are in constant audition mode for their benefactors.
Pure mathematical efficiency is not the only value our society cherishes, and I for one am thankful for that. As it gets cheaper and easier for corporations to algorithmically shift prices from moment to moment according to demand, we’ll have to face a choice: does a neoliberal (Borkian) vision of total surplus, including corporate profits, matter more than a shared sense of fair play and predictability in the marketplace? On its own, public backlash is only so effective. People have hated airline pricing for decades, and again, the Wendy’s CEO still hasn’t clarified what exactly “surge pricing” means. In that sense, the Wendy’s debacle stands for a lot more than the price of a cheeseburger. It’s one tiny skirmish in whether the world will continue to be ruled by neoliberal economists and corporate lickspittles, or whether we want something more than efficiency from our economy.
Image Credit: “The first Wendy’s 7-15-2006 (1)” by Corvair Owner is licensed under CC BY-SA 2.0.