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Privacy Incursions to Support Price Discrimination
An anonymous reader writes "BusinessWeek has an interesting interview with academic Andrew Odlyzko about how increased corporate spying will inevitably lead to targeted pricing and how this system can be abused." The paper (pdf) makes interesting reading. Very good insights into the reasons why businesses want to get to know you.
Is this legal in the United States? It sounds similar to price fixing to me.
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Slap privacy on something and you can generate controversy pretty easily, but soda machines charging more when the weather's hot is nothing new.
I suspect that this field will become increasingly important in the years ahead. One problem (from the supplier side) in the current economy is the lack of pricing power available to boost earnings. Partly due to influences like the availability of product information on the web, consumers are more willing and able to find the best deal on a given item, rather than just march down to the store and pay MSRP.
People also have to realize that price descrimination is and has been all around us for a very long time. Coupons, "daily specials", business-class travel, etc. are all examples of this. There should be plenty of opportunities to increase price descrimination without impacting customer privacy (i.e. the temperature-sensitive drink machine in the article).
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Legality is dependant on how much you are able to spend.
For instance, a tow truck or taxi driver may charge a well-to-do suburban driver who breaks down in the inner city several times the going rate, just to get their rich butt to safety.
And imagine the poor diabetic about to go into insulin shock at the pharmacy, why, they'd pay treble to stave off a medical emergency.
Now, a nice sense of business ethics, based on such hokey premises such as "Thou Shalt Not Steal" might mitigate this, but I have trouble imagining it in our liberalist society.
A. Rightmann
"So, I'd like to buy a lamp. I'll pay a dirham for it."
"Bah, this lamp is made of the finest brass, five dirhams is the least I can accept!"
"Eh... out of pity, I might be persuaded to go as high as two dirhams."
"Sir, I can see you are a man of discriminating taste. As a special favor, I will let it go for three dirhams."
"Done, provided the lamp is filled with oil."
"You drive a hard bargain sir. Done."
All the creatures will die, And all the things will be broken. That's the law of samurai. (Jubai, 1605)
It seems that companies claiming prices as 'confidential' want it all their own way. That doesn't seems like a very pure form of capitalism.
We already know corporate spying is rather widespread. And what do they look for? Well anything really, but client lists, contracts, bids, past sales, etc are prime targets. Of course this will be used for targeted pricing. It already is.
The thing that makes me wonder though, when they say "targeted pricing", do they mean blatantly open about giving me price A and John Doe gets it for price B? It's done behind the scenes already. Sure there'll be a "suggested price" price most companies go "oh, you're from Chili's, so you get this price" and such. Hell, the rental car industry has such a slew of different prices, based on if you're renting it for pleasure, if it's a corporate rental, if your car is in the shop, if it's an insurance rental, and so on. I dunno...this just seems like a no-brainer to me and doesn't surprise me at all.
"He uses statistics as a drunken man uses lampposts...for support rather than illumination." - Andrew Lang
Not really... I mean, sure he could get charged $1000 for a pack uf gum, but this is still capitalism we're talking about here. If you try to charge him $1000, then I'll ofer him $999. But then, someone else will be willing to sell it to him for $800. Eventually, the price will be driven back down to where it would have been anyways. That's how capitalism works. Even if we all know that he is suer rich, we all want to get the sale, and all it takes is one person to be charging $1.50, and then we all have to affer comparative prices, or we'll go out of business.
Think about it this way: two buyers, based on their collected information, are offered DVDs at wildly differing prices. Say buyer one gets said DVD for $1, but buyer two gets it for $10. Both are satisfied, buyer one because it feels really cheap and buyer two because he loves the movie.
Assuming the buyers never converse about the price they paid, both will be satisfied with the exchange value of the DVD, despite buyer two's costs being 10 times his compatriot's.
Ironically, if the two buyers did share price information, buyer two would immediately become irate, knowing that he could have had a better deal. Then again, it's possible that he might just shrug and say, "it was still worth it." I think it just puts the onus on the shopper to be as informed as possible about the value of their purchase and on the seller to make sure their discriminatory pricing doesn't leak out.
I couldn't find a link to it (old story), but the class ring company Josten's had different pricing scales for inner city and suburban school in the Minneapolis-St. Paul metropolitan area a few years back. The shit hit the fan when the media caught wind. Ironically, I don't know that they ever changed their pricing scheme.
Under capitalism man exploits man. Under communism it's the other way around.
" Slap privacy on something and you can generate controversy pretty easily, but soda machines charging more when the weather's hot is nothing new."
.50 because it didn't, can you see how the sale of Guichi belts will drop off.
But, if you walk up to the machine and the numbers flip and charges you $20 for a coke because it detected the Guichi belt from the electronic ID chip in it, and the next person in line gets charged
There is a business model in consumables that is one price to everyone for this product. In barter societies this is different. I personally like the one price thing. The suggestion here is not barter but more like a silent auction behind the scenes to determain what the maximumn price they can get from you is.
The insurance company model is probably closer to this but for commodities from the same company I think it is just too greedy and sneaky.
It may sound awful mean, but remember that the possibility of changing very high prices on occasion may be the only thing that makes the good available in the first place. The diabetic will surely be sorry he's not getting his insulin cheap, but if the possibility of his getting taken advantage of and providing big money to the pharmacist is the only reason the pharmacy is there in the first place, and otherwise the diabetic would die, then he can't be very sorry.
In the case of the taxi driver, remember that prices can't get too high, because (in the absence of collusion) otherwise other taxis would step in, at a price approximating their actual cost, not the benefit to the consumer, under perfect competition.
There are some laws limiting price discrimination. The most widely discussed is the rule of maritime law that a salvage ship can only charge a reasonable price, even if it's the only one around and gets the sinking ship's owner to promise something higher. There is extensive economic analysis of such rules; the general conclusion is that they are not useful, subject to the usual long list of exceptions.
There's a broader question, though. Suppose price gauging is "immoral" according to our common sense but its existence in a particular case is Pareto efficient: that is, it makes everyone in the world better off. Utilitarians would say that, in such a case, we are obligated to discard our moral intuition to make everyone better off. Do you disagree?
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I recall buying my last car, where the salesman had to try several tactics in succession before realizing I wasn't the typical dumbass.
The tactics he tried were set up to catch people of decreasing stupidity, but, because he didn't know who I was, he had no choice but to make guesses about my intelligence and willingness to spend money. This means I was slightly empowered as a consumer, and the deck wasn't entirely stacked in the dealer's favor.
Now, imagine if the salesman had access to my entire purchasing history. If you think salespeople are agressive now, I don't want to imagine what it will be like if they use our own experience against us! The credit score is already bad enough as it is.
Healthcare article at Kuro5hin
Well, you can't really be sure. They might increase the price of medicines for you if they figure out you are severely ill.
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Yes, but there is only one gum company and if you don't charge Bill Gates $1000 they will remove their product from your store and give it to the store accross the street.
THAT'S how capitalism really works.
The global economy is a great thing until you feel it locally.
But then, of course, many potential customers will never log in, opting instead for a different merchant that does publish its prices.
Trust the Computer. The Computer is your friend.
As soon as they get enough people with RFID chips in them...
I bet it will be a prerequisite for social security... no chippie no workie.
Just like ssn cards.
You can spew all you want about it being "net efficient" for everyone involved, and haul out the iota or three of vocabulary you learned in Microeconomics 101 to prove it, but....
Show me, the consumer, how price discrimination as it would be practiced by businesses (you know, entities looking to increase their profit, because that's what they do) actually has any net benefit for me. I don't really care how businesses save money, unless they pass the cost on (which they have no reason to do).
We're out of Mr. Smith's pin factory, people. Real world, real consumers. Give me a concrete example about how this would benefit me.
Kindergarten economics as told by baggins, the Adam Smith-mantrist.
Has baggins ever eschewed the can of cheap cola for Coke or Pepsi for twice the price? Does baggins wear spiffy Nikes or Adidas, or does he wear plaebian Payless shoes, as Adam Smith would hope he wears?
Advertising works on the principal that human emotion is as powerful as human reasoning, something that Adam Smith does not fully appreciate, but is recognized in neo-classical economics and more developed in Keynsian models.
Consumer Groups....bwah! More People magazines, with their Hummer and Nautica advertisements, are printed in one month than all the consumer magazines in a decade.
These systems are busy trying to figure out who's eager to blow big bucks (to charge him through the nose) and who's barely interested & very price sensitive (to charge their lowest price). Guess what - if you're willing to act poor when Big Bro's watching (and quietly pay cash after dickering price whenever you can for your luxuries), you can make this system work for you.
Much of the social status of being rich (vs. poor) comes from the blow-through-the-dough-and-don't-have-to-care (vs. sweating every penny) lifestyle & attitude. This system ain't much different from a bazaar 3000 years ago - the merchants knew perfectly well who was rich and who was poor.
It's easy to make up & spread cool- and credible-sounding stuff. Finding & checking hard facts is hard work.
Neither. What is worse that they give you no alternative.
$4 Watered/iced-down Pepsi product(at least you can say "no ice") $4 bottled water that is 1/2 the size, or nearly undrinkable, heavily chlorinated tap water. If you bring your own and get caught, it gets confiscated and/or you get booted. That is why I complain about it.
...occurs in the prices employers pay to employees. Is it unfair not to know the salaries of all of your co-workers?