Dynamic Pricing: What It Is and Why It's Important

Dynamic Pricing: What It Is and Why It’s Important

Dynamic pricing is a flexible pricing strategy where businesses adjust prices in real time based on market demand, competition, customer behavior, and other factors to maximize revenue and efficiency.

Table of Contents

Context: According to the new Motor Vehicle Aggregator Guidelines (2025), aggregators shall be permitted to charge a minimum of 50% lower than the base fare and a maximum dynamic pricing of two times the base fare.

What is Meant by Dynamic Pricing?

Dynamic Pricing refers to a pricing strategy where the price of a product or service fluctuates in real time based on current market demand, supply conditions, and other external factors.
This allows businesses to maximize revenue and efficiently balance supply with customer needs.
This approach is widely used in sectors like ride-hailing, airlines, hotels, e-commerce, and even utilities.
Prices are not fixed; they adjust automatically using algorithms.
Driven by factors like demand, supply, time of day, weather, or special events.
Surge pricing (higher rates during peak demand) is a type of dynamic pricing.
Aims to match supply with demand and optimize profits or resource allocation.

Important Terms

Surge Pricing

It refers to the additional fee demanded from the consumer during periods of high demand, such as rush hours, when traffic congestion is at its peak.
Such fees are also applied to utilities, like electricity, and are used to help manage the supply and demand, preventing potential blackouts.

Flexi-fare Scheme

It is a dynamic pricing model introduced by Indian Railways in September 2016 for premium trains—Rajdhani, Shatabdi, and Duronto.
Key Features:
- Fare Increases with Demand: Base fare increases by 10% with every 10% of seats/berths booked.
- Capping: Maximum fare is capped at 1.5 times the base fare for AC classes and 1.4 times for sleeper class.
- No Impact on Tatkal Quota: Tatkal (last-minute booking) fares remain unaffected.
- Objective: To increase revenue and better manage demand during peak travel times.

Motor Vehicle Aggregator Guidelines (MVAG), 2025

Aspect	Key Provisions / Details
What It Is	Regulatory framework for app-based ride-hailing platforms under the Motor Vehicles Act, 1988
Issuing Ministry	Ministry of Road Transport and Highways, Government of India
Driver Welfare & Earnings	Minimum 80% fare share (driver’s own vehicle) Minimum 60% (aggregator vehicle) Health insurance ₹5 lakh; term insurance ₹10 lakh Quarterly training for low-rated drivers
Passenger Protection	Mandatory ₹5 lakh travel insurance per passenger Complaints resolved within 3 days Fares only for pick-up to drop-off
Regulated Fare Structure	States fix base fares per category Dynamic pricing: 50% below base to max 2x base fare
Penalties for Cancellations	10% penalty on unjustified cancellations (driver/rider, max ₹100) Valid reasons must be listed
Bike-Taxi Recognition	Non-transport motorcycles permitted for ride-hailing, subject to state nod
EV Promotion & Accessibility	States may set EV adoption targets Inclusion of Divyangjan-accessible vehicles compulsory
Compliance & Penalties	Fines: ₹1 lakh to ₹1 crore for violations Repeat violations: 3-month suspension, possible cancellation of licence