Retailers intend to engage in very sneaky price discrimination. But big data is way overhyped and regularly underdelivers. It might be great at pricing airline seats, but airlines have only so many routes and run planes only so many times of day and days of the week. By contrast, the average grocery store has over 40,000 SKUs. They aren’t going to have granular enough data to discriminate finely on a lot of things. They may try to draw crude inferences, like “People who go to Starbucks daily are higher income and can/will pay more” but aside from using certain criteria to pick out less price sensitive customers, how much price gouging they might take is a crude inference. And what about stores you rarely visit, say the once a year at best sports store shopper?
In addition, this type of price discrimination is against the law in many cities which require merchants to post prices and honor them. But the threat of this sort of system is an argument in favor of not using ApplePay and other phone-based payment systems, which could provide even more granular info about your shopping habits, or not using a smart phone, or putting it in a mini Faraday cage when you are going on a serious shopping mission. Plus if this sort of system starts to be implemented, it’s not hard to imagine that software developers would implement apps to block inquiries from purchase snooping systems, or better yet, feed them incorrect data that says you are price sensitive (like a false history of shopping regularly at discounters).
But as Ramsi Woodcock, professor of legal studies at Georgia State University, observes, those outraged by Delta’s reportedly asking $3,200 for a ticket out of Florida as Hurricane Irma approached should be aware that dynamic pricing enabled Delta to charge the same price to last minute customers two weeks before.
We’ve imposed no limits on dynamic pricing, although we’re nibbling around the edges of imposing some constraints on the sale of our personal data. Woodcock believes dynamic pricing could have anti-trust implications. Anti-trust is justified by many as a way to stop or break up monopolies that could artificially raise prices and reduce total consumer welfare. In a detailed article, Woodcock argues that big data enables “price discrimination (that) extracts more value from consumers than uniform pricing, by tailoring price to the maximum level tolerated by each consumer.” And thus warrants anti-trust enforcement.
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