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Will Big Data Bring More Price Discrimination?

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First degree price discrimination involves charging every individual customer a price based on their individual willingness to pay. Second degree price discrimination does not charge based on customer characteristics, but based on the amount of the good purchased, e.g. quantity discounts. Third degree price discrimination relies on putting customers into groups and charging different rates based on willingness to pay within those groups, e.g. senior discounts at the movies.

new working paper from Benjamin Shiller investigates the extent to which information on Netflix customers could be used to profitably utilize first degree price discrimination

My suspicion is that this phenomenon would be true in a variety of demand contexts, and not just limited to Netflix. The more information we have, the more profitable first degree price discrimination will be. As big data and online buying increases the information that business have on us, the ease and profitability of first degree price discrimination will become difficult to resist.

This of course brings us to Google Glass. If knowing where people go on the web can increase profits by over 1% compared to simple demographics based price discrimination, then how much will it help to know where people go in the real world? How about who they encounter and speak with? What products they look at and how much time they spend looking at them?

Is this kind of world sort of creepy and unfair? I think this is somewhat true and my guess is most people think this is very true. But consider the benefits. 

So yes, in some ways the first degree price discriminating future will be creepy, invasive, and unfair. But at least TV will be better. What’s more this kind of technology will change our lives in ways that extend far, far beyond grocery store discounts and better TV

Stashed in: Virtual Reality!, Big Data Ethics and Privacy, Price Is Right!

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