The practice of adjusting prices based on consumer demand is known as:

The concept of adjusting prices based on consumer demand is referred to as dynamic pricing. This pricing strategy allows businesses to modify their prices in real-time according to current market conditions, including fluctuations in demand, competition, and consumer behavior. It is commonly used in industries where demand can vary significantly, such as hospitality, airlines, and e-commerce.

Dynamic pricing helps maximize revenue by charging higher prices when demand is strong and lowering prices to attract customers when demand is weak. This flexible approach ensures that businesses can respond to changes in market dynamics effectively, optimizing their profit margins while staying competitive.

While other pricing strategies exist, they do not focus on real-time adjustments based on demand. For example, cost-based pricing relies on the costs incurred to produce a product plus a markup, while value-based pricing is centered on the perceived value of a product to consumers rather than on supply and demand dynamics. Differential pricing involves charging different prices for the same product based on specific customer segments or purchase conditions but is not inherently reactive to demand changes in the same way as dynamic pricing.