Abstract
Online shops could offer each website customer a different price. Such personalized pricing can lead to advanced forms of price discrimination based on individual characteristics of consumers, which may be provided, obtained, or assumed. An online shop can recognize customers, for instance through cookies, and categorize them as price-sensitive or price-insensitive. Subsequently, it can charge (presumed) price-insensitive people higher prices. This paper explores personalized pricing from a legal and an economic perspective. From an economic perspective, there are valid arguments in favour of price discrimination, but its effect on total consumer welfare is ambiguous. Irrespectively, many people regard personalized pricing as unfair or manipulative. The paper analyses how this dislike of personalized pricing may be linked to economic analysis and to other norms or values. Next, the paper examines whether European data protection law applies to personalized pricing. Data protection law applies if personal data are processed, and this paper argues that that is generally the case when prices are personalized. Data protection law requires companies to be transparent about the purpose of personal data processing, which implies that they must inform customers if they personalize prices. Subsequently, consumers have to give consent. If enforced, data protection law could thereby play a significant role in mitigating any adverse effects of personalized pricing. It could help to unearth how prevalent personalized pricing is and how people respond to transparency about it.
Highlights
Online shops could offer each website customer a different price
This paper explores personalized online price discrimination (“personalized pricing”) from both a legal and an economic perspective
Online price discrimination or personalized pricing can be described as differentiating the online price for identical products or services partly based on information a company has about a potential customer
Summary
Online price discrimination or personalized pricing can be described as differentiating the online price for identical products or services partly based on information a company has about a potential customer. Among the earliest scholars to write about online price discrimination are Odlyzko (1996, 2003) and Baker et al (2001). Mikians et al (2013) found several examples of online shops that charge customers from different regions different prices, while Hannak et al (2014) found examples of companies that offer discounts to mobile users and to people who are logged in to sites. The report adds that “[t]he increased availability of behavioural data has encouraged a shift from (...) price discrimination based on broad demographic categories towards personalized pricing.” Using cookies or other technologies, an ad network can recognize Internet users when they visit websites and can build a profile of them When they visit an online shop, the shop could adapt prices based on their profile. The technology to personalize prices is there, and if companies can use it legally to raise their profits, they can be expected to do so
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