Big Data and Price Discrimination

Abstract

Price discrimination is a common economic phenomenon which refers to setting different prices to different consumers for a same product. Firms implement price discrimination to increase their profits by exploiting consumers’ welfare at some extent. And the reason why consumers would pay differently for a same product is that they have different willingness to pay. In a broader sense, Price discrimination is not just a simple zero-sum game. It can retain consumers’ welfare while increase the welfare of the society as a whole at some circumstances, or transfer the surplus of certain group of consumers to another without hurting the profits of firms at other situations. In traditional economy, it’s difficult and costly for firms to explore the exact willingness to pay of consumers, but in the era of Internet, the firms can precisely, fast and cheaply explore the willingness to pay of consumers and thus implement price discrimination with the help of big data, followed by the change of social welfare distribution. This paper studies the impacts of big data on price discrimination, the effects of big data price discrimination and the influence of price discrimination regulation. It concludes that although big data is more helpful to firms than to consumers but the regulation of big data price discrimination should be very considerate.