Chapter 4Pricing under Demand Flexibility and Predictability


4.1 Introduction

The essence of smart pricing is exploiting the price responsiveness of the demand side to achieve objectives such as obtaining higher profit, improving customer experience, and sustaining reliable operation. The enormous pace of advances in technology and engineering and new economic practices cause rapid changes in consumer behavior that create new dynamics as well as problems affecting the physical infrastructures and the corresponding markets. Hence, more sophisticated and novel smart pricing methods are required to control and take advantage of the demand-side dynamics.

Smart pricing refers to various techniques such as charging consumers depending on the service usage time, setting location-based tariffs, and imposing prices based on consumer activity levels. For instance, hourly and daily fluctuations in demand are striking patterns that are common to both the Internet and the electricity grid as seen in Figure 4.1. Considering this pattern, Internet service providers and mobile operators charge their subscribers based on the amount of data communicated or the time of communication in order to alleviate congestion in the network [1, 2]. Similarly, electricity usage also can be priced based on the amount or the time of consumption so that daily fluctuations of the grid load are reduced [3].

Figure 4.1 Hourly and daily fluctuations ...

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