Surge pricing takes place when a service provider

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raises the price of its product or service as demand outstrips supply

follows preset prices immune to demand and supply dynamics

fixes a minimum price for its services

fixes an average price on the basis of transactions carried over a day

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This question was previously asked in

UPSC NDA-1 – 2017

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Surge pricing is a pricing strategy where the price of a product or service is dynamically increased, often significantly, when the demand for it temporarily outstrips the available supply. This aims to balance the market by either reducing demand or incentivizing more supply.

The core concept of surge pricing is adjusting prices based on real-time fluctuations in demand and supply, with prices rising sharply during periods of high demand.

This pricing model is commonly used in service industries, such as ride-sharing (e.g., Uber), hospitality, and event ticketing, especially during peak hours, holidays, or special events.

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