September 4th, 2013
I take a fairly non-academic view of price discrimination–which is to say that if sellers want to practice it by imposing hurdles (like coupons or happy hours) that’s fine, because the hurdles apply to everyone and buyers can choose whether or not to impose them. In other words, the seller presents the array of prices and it’s the buyer who makes the discriminating decisions. I’m fairly nervous about seller-imposed price discrimination.
For instance, should Amazon be allowed to charge different prices for streamable content based on your browser? Or your OS? Maybe. How about your IP address? Or your sex? Or your race?
The reason these sorts of price discriminations make me uncomfortable is because once you allow the seller to start walking down that road, what’s to stop a company from instituting punitive pricing on groups they find distasteful, like, say, people who live in Utah. Or people whom they suspect to be opponents of gay marriage. (And if you think tech companies–even publicly-traded ones–would worry about alienating customers by pursuing political agendas, you probably haven’t been paying close attention.)
All of this is just wind-up to this academic-ish piece on the future of price discrimination in Forbes. I’d be very interested in Galley Friend Gabriel Rossman’s thoughts on it.
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Well, in principle I agree with Adam that big data provides enough information to make more effective price discrimination feasible at scale. However I think the contingency that this will bump up against fairness norms is a big one. If a firm were to practice this there would likely be a backlash, especially if the algorithm ended up loading on correlates of protected classes. (eg, some states don’t let auto insurance base premiums on zip code as this a correlate of race, even though this reflects expected payouts not price discrimination). On the other hand I think you’re right that opt-in style price discrimination is likely to be seen as no big deal.
George Scoville September 4, 2013 at 4:54 pm
Well, for starters, the competitive forces of the market for goods and services will stop a company from punitive pricing schemes. If Netflix decides it doesn’t like people in Utah, and it raises prices of video content going to IP addresses in Utah zip codes, along will come Amazon with price discounts targeted to those people. The invisible hand won’t allow companies to leave money out on the table like that. They might do it anyway, but they’ll do it at their peril.