Brian Bergstein, the Associated Press technology writer, has just posted an interesting article about price discrimination as the "next big thing" in e-commerce. It's based on a paper by Andrew Odlyzko, which is even more interesting: "Privacy, Economics, and Price Discrimination on the Internet." If Odlyzko is right, ecommerce will make the economy more efficient...and more inequitable:
"...Privacy appears to be declining largely in order to facilitate differential pricing, which offers greater social and economic gains than auctions or shopping agents. The thesis of this paper is that what really motivates commercial organizations (even though they often do not realize it clearly themselves) is the growing incentive to price discriminate, coupled with the increasing ability to price discriminate. It is the same incentive that has led to the airline yield management system, with a complex and constantly changing array of prices... Privacy intrusions serve to provide the information that allows sellers to determine buyers' willingness to pay. They also allow monitoring of usage, to ensure that arbitrage is not used to bypass discriminatory pricing.
"Economically, price discrimination is usually regarded as desirable, since it often increases the efficiency of the economy... On the other hand, price discrimination often arouses strong opposition from the public.
"There is no easy resolution to the conflict between sellers' incentives to price discriminate and buyers' resistance to such measures. The continuing tension between these two factors will have important consequences for the nature of the economy... Governments will likely play an increasing role in controlling pricing, although their roles will continue to be ambiguous. Sellers are likely to rely to an even greater extent on techniques such as bundling that will allow them to extract more consumer surplus and also to conceal the extent of price discrimination. Micropayments and auctions are likely to play a smaller role than is often expected. In general, because of strong conflicting pressures, privacy is likely to prove an intractable problem that will be prominent on the the public agenda for the foreseeable future."