Sunday, March 15, 2009

Privacy and Price Discrimination

I'm doing some research on privacy policies and prices charged on webstores. There has been a great deal of work by Taylor, Varian, and others developing models that try to determine whether websites can use data collected on past purchases to change the prices that consumers face for future purchases. That is, if a website notices that you've purchased many action movie DVDs in the past, you might see higher action move DVD prices the next time you visit the site than someone who doesn't buy such movies. The goal would be to increase profit, with possible side effect of making some consumers better off.

As far as I can tell, the only clear example of this being done is Amazon, which tried it for a while in 2000. Customers were outraged, so Amazon stopped. The CNN link just provided says that this Annenburg study says that other sites may do it as well. Reading the actual paper, however, I can't find mention of the photography site example mentioned at the CNN link. It seems to me that this sort of price discrimination would be very hard to carry out, since one could evade it by clearing one's cache. It will naturally tend to anger customers, too. Suppose a friend links you to a good deal, and you click the link only to find that, for you, the price is higher. Wouldn't you find this irritating? The ease with which consumers can search for and compare prices should make price discrimination of this sort difficult.

So I ask you, have you ever seen something like this happen? Are you aware of any examples of hidden price discrimination online?* That is, has anyone else done anything like Amazon, charging different people different prices based on their purchase history, or based on sites recently visited? If there are no such examples, I cannot help but wonder why some economists have devoted so much effort to this issue. Online privacy is an interesting topic, but I don't think it has much to do with price discrimination.


*I am not referring to old-fashioned price discrimination here. For example, airline websites still charge customers more for flights that leave tomorrow than they do for flights that leave in five months. That's merely a continuation of what they used to do offline, and they're not secretive about it.

2 comments:

Christopher said...

I think I have seen the type of price increase you described on a hobby site just recently. I wanted to purchase three models but they only had one in stock for $10.60. They said they would place the order for one now and I could re-order the other two when they came back in stock. I went to re-order and the model is now $11.15. Not an amazing amount, but still more than I originally paid.

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