Dynamic pricing update demonstrates CMA’s proactive stance

Angelique Bret, competition and consumer law expert at Pinsent Masons, said: “The CMA is taking a proactive stance on regulating dynamic pricing, with a clear message that while innovation in pricing is not inherently problematic, it must be implemented responsibly. The authority is continuing to monitor developments in this area and may take enforcement action where it suspects breaches of UK consumer protection law, which has been recently strengthened by the Digital Markets, Competition and Consumers Act 2024 (DMCC Act) to allow the CMA to impose fines for infringement.”

The CMA’s dynamic pricing project was initially launched in November last year in response to growing concerns about the fairness and transparency of pricing algorithms. These concerns were amplified by the public backlash following the Oasis Ticketmaster controversy. The CMA aims to understand how dynamic pricing is deployed across sectors and to assess its impact on consumer outcomes.

Dynamic pricing is where prices are adjusted rapidly and frequently in response to changing demand conditions. The method has become increasingly common in sectors such as travel, hospitality, entertainment, and online retail.

The update paper has revealed that while dynamic pricing can offer benefits, such as better inventory management and more responsive pricing, it also carries risk of consumer harm, particularly where pricing lacks transparency or where consumers are unable to make informed choices.

Tadeusz Gielas, competition and consumer law expert at Pinsent Masons, said: “As technologies such as artificial intelligence develop, so too does the potential for pricing practices like dynamic pricing to become increasingly prevalent and complex. While dynamic pricing can help businesses manage supply and demand more efficiently, the CMA is now questioning whether it always serves consumers fairly.”

The update paper outlines various risks, including the potential for consumers to be misled, disadvantaged or unfairly treated, especially when pricing algorithms are opaque or when consumers are unaware that prices are fluctuating based on their behaviour or other factors. The CMA found that some consumers may not realise they are being charged different prices for the same product or service depending on when and how they shop, which can erode confidence in markets.

In response, the CMA has issued a set of practical tips for businesses that use or are considering using dynamic pricing. These recommendations are designed to help firms comply with consumer protection law and maintain fair treatment of customers. The tips highlight the importance of transparency, with businesses urged to clearly communicate when prices are subject to change, explaining the factors that influence those changes. Companies are also encouraged to assess the impact of their pricing strategies on different consumer groups, particularly vulnerable individuals who may be disproportionately affected. The CMA emphasises that businesses should avoid practices that could be seen as discriminatory or that exploit consumers’ lack of awareness. The guidance also advises firms to regularly review their pricing algorithms and data inputs to ensure they are functioning as intended and not inadvertently causing harm.

The CMA’s focus on dynamic pricing is also part of its broader ambition to ensure that digital markets work well for consumers. The project forms part of a wider programme of work examining how algorithmic decision-making affects consumer outcomes. The CMA is not only gathering evidence from businesses and consumer groups but is also exploring the technical underpinnings of pricing algorithms to better understand their real-world effects.

The CMA’s scrutiny of dynamic pricing is unfolding against the backdrop of the DMCC Act which came into force earlier this year, making important changes to the UK’s competition law and consumer protection regimes. The DMCC Act gave the CMA new enforcement powers allowing it to directly impose substantial fines on businesses and individuals for consumer law breaches without needing to go through the courts. It also introduced new enforcement tools such as online interface orders, which can compel businesses or internet service providers to remove or amend online content that breaches consumer protection rules. The DMCC Act also strengthens the regime around unfair commercial practices (UCPs), which includes provisions targeting misleading actions and omissions, and new provisions that prohibit fake reviews and drip pricing.

Bret said: “These changes are particularly relevant to businesses using dynamic pricing models. The CMA has indicated that pricing strategies which obscure the true cost of a product or service, or which manipulate consumer behaviour through opaque algorithms, may infringe consumer protection law.”