Privacy, Economics And Price Discrimination On The Internet

Predictions

from the great-read dept

As has been discussed here in the past, one of the most efficient means of pricing on the part of a producer is to use price discrimination – charging those who value a product more a higher fee, while selling it to those who value it less at a lower fee (assuming the fees still are above the marginal cost of productions). Now, Andrew Odlyzko has written an interesting (somewhat long) article about Privacy, Economics And Price Discrimination On The Internet (warning: pdf file) saying that a good part of the reason our privacy is eroding online is that companies are trying to get our info for the sake of price discrimination. For comparison purposes, much of the article uses the pricing example of the railroads, which also aimed at price discrimination. The one element that is missing from the paper (though, it might not matter) is the idea that it’s not just the producers who have better information – but the consumers as well. So, while the producers have more access to information, letting the erode our privacy and better price discriminate, the fact that consumers have better access to info (comparison shopping, reviews, auctions etc.) lets them counteract the effects of price discrimination in many cases. However, the reason I say this omission might not matter is that Odlyzko clearly points out that most people have a clear negative reaction to overt price discrimination – and thus, he expects that while our privacy will continue to erode, the resulting price discrimination will be subtle and almost “stealth”. It will be done in ways that make it seem less like price discrimination, and more like “membership clubs” or “frequent flyer programs”. In situations like that, the producers are, in some ways, clouding the picture – making it much more difficult to compare situations from the consumer side, and thus, lessening the ability for consumers to counteract price discrimination. One good thing that could come out of this though, is that he cites evidence suggesting that price discrimination actually tends to lower overall prices and be better for consumers, no matter how much they dislike the concept.