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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.
The preceding comment has been reviewed and declared to be compliant with HIPPA Phase II regulations.
Slap privacy on something and you can generate controversy pretty easily, but soda machines charging more when the weather's hot is nothing new.
Couldn't this be turned around by making false online identies? Tailoring it to garner the best prices?
You stop by CNN.com, and a pop-up flashes on screen: "Hello, Mr Thompson, you look like you could use a bigger penis!"
That Bill Gates will get charged $1000 for a pack of gum?
If so, I'm all for it.
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)
The easy solution to this though is to simply not let the companies gather any information about you. For example, if you are a businessman, they will try to charge you more for airfare. Whereas, if they no nothing about you, they will assume that you are just a vacationer, and you can get a cheaper fare. It's all about working the system.
Now don't you go getting any ideas...
Actually, my last job was as a pricing analyst, and it was all about this topic. How to price differentiate while staying within the bounds of the law. Arguably this increases overall economic efficiency.
Felt kind of weird, however, trying to figure out how to wring every possible penny out of the small buyers but coming back, while at the same time keeping the national accounts in check with huge price reductions (50% or more). The 3rd factor is making sure that the little guys never knew about the big boy pricing, or at least never knew more than the fact that buying more could be a positive thing for their own price structure.
Keeping small guy prices high is easy.
Keeping big guy prices low is easy.
Keeping the both happy customers is not.
I see some major potential for abuse with this. What if a compant decides it does not want to sell to people of certain ethnic backgrounds (French and Arabs, for instance), and raises its prices for those people to a million dollars?
"Do I dare disturb the universe?"
So does this mean that all those people claiming that the software they steal isn't a loss because they wouldn't buy it anyway will get to buy it for $0.01? I mean, that's accurately priced for them...
Sig & Below
Yuck Fou
This is very similar to the targeted prices of DVDs (region-coding). It's definitly a good thing for corporations (making people with more money pay more while still having access to lower-income markets), but there are obvious implications...
Of course, barring poor legislation, there are always ways around this sort of thing. If $product is available somewhere for less, I will be able to find it somehow (thank you Internet!) regardless of a corporation's efforts to trick me into paying more.
Right now, I have a region-free DVD player (flashed APEX), a region-free PS1 (stealth chipped), etc...
Geeks always win.
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Ever been asked to provide some "promotional code" from an ad before getting a price? Different ads have different pricing. Giving loyal customers better prices is common. Airline pricing seems fair to me. A business that makes me travel on short notice pays through the nose. Joe blow who plans his vacation well in advance gets a better price. Buyers beware same as always. Well informed consumers get better deals. That won't change. The people who don't like this want everyone to pay the same shitty prices. They want to remove all responsibly for getting the best price from the actual consumer.
Targetted pricing allows people who could normally not afford it access to products they couldn't normally buy. And it despite what it seems, it doesn't raise the price for others - they would be having to pay this price anyway but now others also have access. It may even increase the value of the product they buy because if more other people are using it, in some cases, compatibility issues stop hindering its usefulness.
Instead I will start getting weight gaining tips and candy advertisements
New year Resolution: Don't change sig this year
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
You are exactly right. The consumer still has control of the decision to purchase- but the transaction is now more personal.
I can remember shopping in the Philippines- each clerk had a calculator in hand to show you the price of an item- so that other customers would not over hear. Each transaction stood on its own and you might do better or worse than the person standing next to you.
It's hard to believe that's how Micronians are made. Why don't we see it right now by having you both kiss one another?
Until an unplanned meeting with some black ice and a nearby tree, I used to own a Jaguar XJR. Now, big luxury cars depreciate fast and this Jaguar was seven years' old at the time of its demise. In other words, most people's year-old hatchbacks cost more than this car's second-hand value.
Despite that, the majority of people I dealt with who saw the car decided that I was obviously stinking rich, available to be fleeced and took the opportunity to try and rip me off. This would include car mechanics to a small extent (it was main-dealer serviced most of the time, you get ripped off there anyway) but also to workman calling at the house. Prices quoted for the same job varied enormously depending on whether I left the Jaguar parked outside the front or whether we left the MX-5 (Eunos Roadster/Miata by another name) parked outside.
Price discrimination? Yep, know all about that.
Cheers,
Ian
It pisses me off every time I'm in a store, but I only get really angry when the checker says something like 'Sir, you would have saved $15 on this purchase if you had used your discount card. Would you like me to give you one now that I'll use for this purchase.' If I have to pay outrageous fines to maintain my privacy, I'd rather not know how outrageous they are.
Recently (probably as complaints have risen from my demographic), most of upscale markets in our area have started granting the discount anyway if you tell them that you value your privacy, and they swipe a register card instead. Presumably they now are collecting data on privacy freaks, but at least it is as a group rather than as individuals.
--
BitTorrent in C -- LibBT
http://www.sf.net/projects/libbt
and figured you were a masochist who enjoyed paying large sums of money for unreliable objects.
A. Rightmann
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?
I Can't Believe It's A Law Firm, LLP does not necessarily endorse the contents of this message.
This has indeed already been put into place in many markets. Check out this article for one example of such.
I ain't evil, I'm just good looking.
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
I do see the problem that might occur here, and you do bring up a very valid point, but this relative payment size is not a bad thing. In a world where the rich are filthy rich and the poor are dirt poor (and I truly believe the gap between the rich and poor is increasing), it doesn't neccessarily seem like a bad thing for targeted pricing to workout, so long as it's not an egregious attack on the value of their services.
It's sort of like a builtin tax system. Taxing is relative to the amount you make, and it seems to work pretty well. If you break down and need a tow truck service, they might come and give you coffee while they pick you up, and charge you a bit more. It's for a reason: you can afford to pay more.
But now, don't go crying, "well damn, the rich kids aren't going to be able to get things anymore!!" You're missing a fundamental point of capitalism if you do: COMPETITION. If, and only if, one company has monpolistic control over a market then they can control pricing. And if they do, they'll get in trouble. If they don't have monopolistic control, the safe guards of free economy will come in and ensure prices aren't inflated.
I'm just a diehard liberal, and I want the rich taxed off their thrones, and targeted pricing is something that doesn't seem infinitely evil to me. At the same time, I do realize that free economy will keep rich people from becoming less rich.
Utilitarians would also argue along those lines for a massive reduction in trade barriers, and in large part they'd be right (IMHO). The decision on such matters, however, does extend beyond dollars and cents. There are other factors (social stability, national security, cultural tradition, etc.) that don't fit into the economic model yet play a role in setting policy.
/. has the sig along the lines of, "all models are wrong, some are useful." A very good thing to keep in mind...
I can't recall the user, but someone here at
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Advertising doesn't work on me. It usually just makes me not want to buy things.
:-)
So things like the bandwagon tactic (convincing you to do/think what everyone else is because everyone else is doing so) don't work on you, eh?
As you sit on Slashdot and join half the people on here in griping about privacy?
Advertising definitely works. If you see a brand frequently, people tend to consider said brand more reputable.
May we never see th
"banal"
You are so right.
Mr. Odlyzco states that: "Economically, price discrimination is regarded as desirable."
Hoo boy, Where did that come from? Not only is that statement wrong, it is so fundamentally wrong I can't believe that anyone would interview this guy (obviously they haven't published his paper).
All beneficial aspects of market economics is based upon a "market clearing price." The "efficient market" is based upon a market like the New York stock exchange. The market clearing price is what drives down prices, and gives us what is called the "consumer surplus."
Price discrimination only results in higher output for a monopolist--because the monopolist makes his profit from restricting supply. The highest output is always achieved from a perfect market in which the price is driven down to the marginal cost per unit.
Only a monopolist can engage in true price discrimination, but all vendors wish to create "limited" monopolies and get price discrimination to certain degrees. Limited monopolies can be created through brand IDs, location, government franchise, patent and copywrite, being first to market, and so forth.
Price discrimination in airline fares is a complex intertwining of federal governement regulation, local airport regulation, kickbacks (where the flyer is not paying the fare), obfuscation and fraud.
If price discrimination were the rule, we would pay more for water than we do for wine. Every life-saving or limb saving medical operation would require the patient to file bankruptcy and pay every penny to the hospital because bankruptcy would always be preferable to losing an arm.
No prices would ever be posted anywhere. We would negotiate the price of every single purchase--including every hamburger and every Coke (his example).
It is this bleak vision that lead to over half of the world choosing communism in the first half of the century. It is the open market, that gives us our prosperity.
The issues of price discimination, monopolies and limited monopolies are so well documented that it is puzzling that Business Week would even think it worth while to interview this guy. In any case, it is pretty clear that after taking Econ 101, Mt. Odlyzco dropped out halfway through econ 102
Did anyone stop to think about the good implications of targeted pricing?
Right now, the warez and mp3 and all of those things exist because college students and others do not have the funds to buy all of the media and copyrighted material they want access to. There is a glut of material on the market, all priced exactly the same.
Targeted pricing would allow media companies, pharmeceutical companies, and anyone else to sell to someone at the appropriate amount for their economic group, background, and other things factored into this.
theoretically, in an abuse free system, targeted pricing could be the answer to many of the current social problems in a market where everything is set at the same price.
Right now, development of drugs is funded by the pockets of rich nations. IP laws keep small and poor nations from producing these medications for their citizens. One shining example of this is aids medication. If a system were developed to encourage targeted pricing, then it could conceivably still fund R&D while providing people with what they need.
This also applies to getting what people want, with copyrighted media. Targeted pricing would allow for the college student and others to get legal access to media they want access to, and apply appropriate pricing to those with more economic power.
it really sounds ideal to me. however it has major problems.... privacy, and trusting those in charge. both of which are impossibilities.
conversely, we've already lost all of our privacy, and those in charge are corrupt anyway, so its not like we have anything to lose either way.
The tourist McDonalds has no Value Menu; the regular one does. This is common practice, and it is up to the consumer to avoid rip-offs.
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Together, we will drive the rats from the tundra.
Your sucker rating will haunt you like your credit rating. Now is the time to start being shrewd, before you build up a reputation a big fat sucker.
While being a bachelor here in Toronto I learned an important lesson in buying meat and how it is priced. Go to a rich neighborhood to buy your hamburger and go to a poor neighborhood to buy your expensive meats (steak, filet). What was interesting was that the quality of the lower cost meats was generally better.
When I got married, my wife didn't believe this until I did some comparison shopping with her. I suspect this is true in other cities as well.
myke
Mimetics Inc. Twitter
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.
Targetted pricing is a way for companies to supply goods at prices the market will bear.
This will allow them to charge the wealthy what they are willing to pay for a product (more) and charge everyone else what they can afford to pay for a product (less).
So, capitalism will, due to targetted pricing, become the self regulating thing that it should be and finally narrow the gap if not between the rich and the poor, at least between the haves and the have nots with more equal distribution of goods due to pricing pressures.
(seems kind of ridiculous, eh? This is the logical conclusion of what people are paniced about. The fact is that targetted pricing is a fad and will amount to nothing because markets work at a macro level and will force *all* prices to competetive levels)
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.
...occurs in the prices employers pay to employees. Is it unfair not to know the salaries of all of your co-workers?
For individual price fixing to work, it has to appeal to the consumer on a number of possible levels:
- Product appeal
- Convenience
- Value (or apparent value). Why do you think all those do-dads on TV include "free" items? To build value into otherwise worthless junk.
- Impulse purchase
- Level of trust
- Time limited offers
Any experienced on-line purchaser or consumer usually has a rough idea how much certain items are worth, i.e. CDs, movies, etc. This is why I don't think price discrimination will feature large differences is price. It's easy enough just to call down to my favorite music store and ask how much a particular movie or CD is before I purchase on-line, or check other web sites. The point is, comparison shop. If you shop around, the most a price discriminator could get away with is a few dollars, not the amounts that some people have indicated here, but YOU HAVE TO SHOP AROUND. Whenever I am considering a large on-line purchase, I compare the price to what is offered at a local store.
The problem, of course, with shopping around is it entails effort and many want the web to be effortless, so they impulse buy or worse yet trust the deal that's offered to them without shopping. It's the same in the real world, you have to comparison shop.
What I think you will find instead of huge price fluctuations is package deals and specials tailored to the individual consumer. I see nothing wrong with that, actually it quite appeals to me. I regularly receive specials from an on-line electronics dealer that I frequent and have taken advantage of quite a few of these specials, after comparing prices first.
My 2 cents.
Can ultra efficient price discrimination limit and eventually prevent entries into a market?
Imagine that Amazon.com succeeds in charging you exactly what you'll pay for. This means that you'll see their price, you'll consider it, and, WHAM, you'll click on the patented, novel, Buy(TM) button.
Now imagine that a new, energetic startup, Nile.com, decides that it wants to enter the internet book-selling market. It, not having the resources that Amazon has, is forced to use a "one-price-fits-all" strategy. Nile, by the laws of economics, will not be as efficient. And less efficient companies will lose out to more efficient ones, again, according to the laws of economics.
So all Amazon.com has to do to prevent Nile.com from gaining market share is operate at a high efficiency whenever there's a competitor. Once the competitors are toast it can go back to acting like a monopoly. The difference here is that NO ONE WILL EVER KNOW. If you don't know what price your neighbor paid, how can you claim that they've raised prices? Especially in a world where raising prices can actually mean not lowering consumer prices when distributor prices fall.
You're always happy with Amazon's price (remember this is a perfect price discrimination structure), so there's no incentive to look elsewhere. Amazon.com just keeps the excess profit from falling prices and only lowers them when new companies enter the field.
Bingo, a perpetual monopoly, one that can't be broken by anti-trust laws and investigations. Or am I seriously wrong in my theorizing?
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about three years ago. It was reported in the NY Times. They were charging for DVD's based on past spending habits. If you were known to be willing to pay a lot for a DVD you saw the higher prices.
There was a customer uproar and a threat of a class action suit. They publicly recanted and said "never again."
If not, is it legal to have a lunch counter with only $100 lunches, but a 95% discount for whites? Or a University with $1,000,000 yearly tuition but a 90% discount for whites?
And if none of the above is legal, then I submit that other forms of Price Discrimination should be illegal too, be it gender, income class or anything else.
I'm an American. I love this country and the freedoms that we used to have.
Maybe I'm understanding this incorrectly, but I find it odd that this discriminatory pricing is a "holy grail of capitalism". I can understand how it would benefit a corporation (at least in the short run) to wring every last penny out of its customers, but think about it from a slightly different angle:
Assume for a moment that consumers place the highest value on specific goods, like water, food, housing, and transportation. Assume also that fringe goods (computers, clothes, entertainment) must, by definition, be valued lower than more basic goods. In an economy where pricing of basic services is discriminatory, the providers of basic goods will be able to raise their prices on an individual basis, according to the consumer's ability to pay.
Given the nature of these goods, the providers should be able to raise their prices to consume all of their customers' available income. There are no substitutes for these goods, and if there were, presumably they would be priced similarly.
In this extremist's scenario, *everyone* would be living below the poverty level, with NO discretionary income. All of their income would be consumed in purchasing these most basic services. And what would the companies be gaining from this? Nothing -- all their money would just mean they pay more for their basic goods and services. Sounds a lot like communism to me, but this would gradually degrade into an agricultural society as people lose their jobs when no one buys their products.
In a less extreme scenario, the disparate discretionary income of consumers at different income levels would, in theory, be able to purchase only the exact same relative value of goods and services, even the CEO's of the megalithic corporations with all their money. Wow. That still sounds like communism.
Capitalism is built on my ability to consume more than you because I (presumably) contribute more to society than you, or vice versa. Anything that upsets this delicate imbalance undermines our very way of life. I will grant you, though, that this is a great argument against Adam Smith's "Invisible Hand".
--Jasin Natael
True science means that when you re-evaluate the evidence, you re-evaluate your faith.