Optional Price Discrimination

Abstract

Price discrimination generates considerable angst. As merchants develop ever-more-powerful mechanisms for gathering and compiling information about consumers, the specter of fully personalized pricing seems to loom as an ominous threat. Yet a parallel phenomenon quietly coexists with all this distress over tailored prices: models that encourage people to voluntarily contribute, typically in varying amounts, the sums necessary to cover the fixed costs of producing particular goods and services. This Article proposes enabling customers to opt into price discrimination in a more structured way across a broader range of markets. Optional price differentiation can make markets fairer and more inclusive by extending access to more consumers and facilitating provision of a broader array of products and services. For it to do so successfully, however, producers must be able to bind themselves to pricing practices and uses of revenue that are attractive enough to induce participation by both high- and low-valuing consumers, and that are transparent enough to ensure meaningful choice. Government can facilitate experimentation along these lines by setting standards for disclosure and data use, and by policing against fraud and misrepresentation.