9483
AiS

Session 9b

Joshua
Foster



Agenda

  1. Quick Case: Surge Pricing at Wendy’s: A Frosty Reception.

February 2024 Earnings Call: Wendy’s CEO, Kirk Tanner, said in 2025 the restaurant would "begin testing more advanced features like dynamic pricing."

  • Tanner's remarks created a stir among customers and politicians.
  • Wendy’s needed to issue a clarifying statement on its pricing strategy.

What is dynamic pricing?

How does dynamic pricing compare to price discrimination?

How does Wendy’s provide value to its customers?

(i.e. where does the consumer surplus come from?)

Objective: Evaluate Wendy’s opportunity to use dynamic pricing in 2025.

  1. Consider the relevant economic tradeoffs, relative to static pricing.
  2. Use behavioural theory to explore potential consumer reactions.
  3. Identify the most likely response from competitors.
Group 1 Rawaiz Sheikh Bani Sehgal Sachin Mohanty Gabrielle Stadler Annie Zhang Abhimanyu Sheoran Siddhanth Khanvilkar
Group 2 Calvin Jiang Natasha Shew Christina Gucciardi Andrew Shepherd Josiah Dueck Matthew Grilli Jennifer Hsin
Group 3 Milos Masnikosa Noah Suissa Max Welyhorsky Runfeng Li Aakriti Gupta Alexis Gantous
Group 4 Zhaokun Du Imaiya Ravichandran Mayank Ahuja Mike Hockin Atanu Sahoo Kaanshika Mittal
Group 5 Suyash Singh Michael Saunders Elvin Yu Daniel Zhu Ismyal Khan Ross Ferguson
Group 6 Shashank Rusia Nikola Lapenna Mackenzie Fulton Shiva Sankar Adamo Sansalone Kai Hu
Group 7 Karanvir Singh Akshay Rewale Syed Murtaza Nadeem Lin Ma Feng Xu Tunmise Ajiboye
Group 8 Eric Parr Smarth Narula Evelyn Vanderhoof Kaartikeya Pandey Gagandip Grewal Yashodhan Sule

Small Group Task

In your assigned groups, take the next 15 minutes to reflect on the In-class Assignment Questions posted to Learn for this quick case.

Be prepared to discuss your responses to these questions when time is up.

Do you think Wendy’s should use dynamic pricing at all?

What is the economic argument for why dynamic pricing could improve Wendy’s profitability?

Where do we typically see dynamic pricing?

Surge Pricing.

A rapid increase in price that can be the result of a sudden increase in demand, decrease in supply, or the removal of pricing constraints (e.g. price ceilings).

Why would Wendy’s proposed strategy be accused of surge pricing? Is this a fair accusation?

What relevant behavioural considerations did you identify among consumers?

How do they influence Wendy’s pricing strategy?

What does Wendy’s need to do to manage the fallout (if any) among consumers?

How do you anticipate Wendy’s competitors will respond to dynamic pricing?

Will dynamic pricing eventually become normalized in the AI era?

Firms like Wendy’s must account for non-price factors.

  1. Distributional social preferences when comparisons to others are relevant.
  2. Reference points and loss aversion when comparisons to expectations are relevant.

Standard economic models will under-estimate the influence of these preferences on market outcomes.