David Dayen writes in the American Prospect this month about "surveillance pricing," the art of charging different customers different prices for the same thing:
Surveillance pricing is done in the dark because companies know there would be some degree of anger if a product with one price suddenly had 330 million. Any kind of discrimination only works well in secret, before too many people understand the implications. “What people fundamentally want as a public-policy goal is predictable pricing,” Hepner said. “If people were aware that they were paying differently, they would be upset.”
I have my doubts about this. The most famous example of price discrimination is airline pricing, where every single person in a single row of seating may have paid a different price. The second most famous is university pricing, which is explicitly tailored depending on how much money they think they can squeeze from you. In both cases consumers are annoyed by this behavior. In neither case has it caused a revolt.
As David notes, the most common examples of true surveillance pricing, which depends on the collection of personal online data, isn't about charging different retail prices to different customers anyway. It's about offering personalized coupons. Or pushing up prices and then offering discounts to holders of loyalty cards. Or taking advantage of circumstances, like Uber's surge pricing when demand is high. The first two are very public and very popular. The third isn't. That's because the first two are framed as discounts while the third is framed as a surcharge.
So that's the hot ticket: Figure out a way to frame your surveillance pricing as discounts for some people rather than higher prices for others. That's a rich American tradition, and you can be as open about it as you like. Not only will no one complain, they'll shower you with hosannahs and viral TikTok videos. Welcome to the future.
Every grocery store, etc., "loyalty" program, especially now that they've moved into apps.
What drives me nuts is the pervasive "relationship marketing" crap. I don't care to accommodate your enterprise customer lifecycle management application, thanks.
I will not download your app, give you my phone number/email address or sign up for your loyalty card. I know it costs me more, whatever. Take my money and fuck off, already.
This how we get, e.g., Target knowing a young woman was pregnant before her own family did. She had bought a pregnancy test, and then some folic acid supplements, IIRC, and all of a sudden, all these circulars for new strollers, diapers, etc. start showing up in her parents' mailbox and, well, *that* was an awkward dinner conversation.
When we do this to help the poor we talk about charging on a sliding scale. We generally think if that as a good thing.
If you read the full article you will see that exactly the opposite is happening. Companies are charging higher prices for customers in poorer areas.
An example of what Kevin is talking about was the recent kerfuffle regarding Wendy’s starting dynamic pricing. They explained they wouldn’t be raising prices during high traffic periods, they would be lowering them during low traffic periods. And people bought the “explanation”!
https://www.npr.org/2024/02/28/1234412431/wendys-dynamic-surge-pricing
That thing you're worried about? It's not a big deal to me, Kevin Drum.
+1
Sell it as" Our rates are precisely calculated to fit your budget".
Which has the added virtue of being true.
One of the examples Dayen describes is Uber charging a higher price to a user whose phone battery is down to 12% than one whose battery is at 80%. Based on the fact that the person whose battery is closer to dying is more desperate to book a ride. That's not innocent, that's straight up capitalist predation.
Sure seems hard to justify or explain in any other way!
I'm just picturing the meetings where Uber brass sat down with all the different kinds of data they had and figured out just how each little piece might be used to squeeze more pennies out of riders. Did they develop a desperation index or something systematic like that?
And then again, don't our states have laws about adhering to published pricing? Most do for taxis, and the feds for common carriers, among other things, and they're supposed to be the starting point for any deviations. The never-ending struggle between sellers and buyers is supposed to be policed, isn't it? And it *is* never-ending.
States also had laws regulating cars for hire, then threw them all out the window when apps came in and said “oh our service isn’t a taxi, it’s simply people charging other people money to take them somewhere.” Same with hotels and “disruptors” like AirBNB upending laws regulating hotels.
I don’t expect states to be much help in regulating surveillance pricing.
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I heard an interview with the authors here - https://omny.fm/shows/odd-lots/corporations-learned-the-maximum-amount-they-can-c. The thing that stuck out to me is how it could lead to collusion. They shared the example of how landlords in an area might use a service called realpage that tells them what price to set the rent at. A kind of collusion without each landlord speaking directly with each other.
Neither airline tickets nor university tuition are things most Americans have to buy on a routine (eg daily, weekly or monthly) basis. When surveillance - or as it was formerly known as “dynamic” - pricing hits grocery stores, fast food places and gas stations, I expect it to be much more controversial.
(Yes I realize grocery stores have loyalty clubs which see different prices than non-loyalty club members see. But this is different from what Kevin is talking about because there’s only 2 prices for each product - loyalty vs non loyalty - and not literally thousands based on each specific customer’s profile, and because the “cost” of getting the loyalty price is pretty small - you simply need to ask the cashier for a loyalty card, on which you’re free to scribble down total lies for name, address, phone, etc.)
This all seems to me like greed on speed.
At the end of the day, the price isn't really the price anyway. The price is calculated based on cost of the goods, profit, and what the market is saying it will pay. For some people the price is too high, for others it's a good deal. It's relative to how much value you assign the product.
Some are expected to be flexible. If a home seller can't sell at their expected price, they drop the price until a buyer agrees with the pricing. Or they back out and wait for more favorable market conditions. Not everyone has the luxury of waiting though, sometimes a seller needs to move. Sometimes in other industries the product viability (like perishables) is ticking. Meats go on sale the closer they get to the sell by date and the store really needs to move the product or they take a loss.
When my personal AI-driven purchasing agent is unleashed upon the retail world - negotiating the price of everything I buy through high speed bid/ask iteration - my power as a consumer will be at its zenith.
Who wants to bid for my dollars? I need these things:
Also there’s the sense of loss of control in surveillance/dynamic pricing that I think pisses people off more than mere price discrimination. Like, with airline tickets, yes everyone around me may have paid less than me. But I could’ve booked my ticket earlier like they did, or opted for basic economy like they did, or whatever. And if I had done those discrete actions, there’s a 99% chance I would’ve gotten the same price. (Yes, there are buckets of seats at each price point and it’s possible someone else would’ve exhausted the bucket before you could emulate them, but that’s not super common as someone who books airfare deals separately with friends all the time.) The prices were openly published and offered to everyone who did the exact same thing those people did to get that price.
Same to some degree with university pricing: if I took the same job, lived in the same type of house, etc as the parents who got a “better deal” I too likely would’ve gotten the exact same deal. The university is simply giving tuition discounts on a hidden but fixed-the-same-way-for-everyone mechanism. (Plus people react to “discounts” way differently than they do to whatever is called the “base” price, even if economically they amount to the same thing for the seller.)
But with true surveillance (and to some degree dynamic) pricing, there is *nothing* you can personally do to see the same prices as someone else sees. You can’t retroactively change all your behavior up to that moment to mimic someone else and get the price they see. And even if you could, it’s unclear the opaque algorithm would generate the same price for you anyway. You’ve lost total control to influence what prices you see pretty much since the first day you picked up your cellphone. And that’s what’s going to make surveillance or dynamic pricing more annoying to people than just plain price discrimination.
Absolutely this-- one side looks at a completely opaque transaction, while the other side has near-total visibility into the other's circumstances and also complete control of the pricing basis. That asymmetry is predatory in itself, and people are right not to like it.
We reasonably expect some situations, like house-buying mentioned upthread, to involve bargaining. In most everyday transactions we don't expect that-- just try offering your supermarket 50 cents on the dollar for macaroni, or negotiating your gas price the next time you fill up. And we sure don't expect the gas pumps to post individualized prices as we pull up (1.19/gal for the poverty-stricken, 11.79/gal for a well-heeled lawyer, and 111.79/gal for Bill Gates, say-- or maybe that's upside-down, considering how expensive it is to be poor in this country). But that's where this kind of pricing can be headed.
The only constraint I can see on its logic is that if it's about individualizing discounts, then it has to start with some kind of posted price that can drive people away if it's too high. But that's a thin reed to rely on as consumer protection.
I think you've put your finger on it: Capitalism is sold as being 'The best of all possible economic systems' because of price-signalling (or at least that was what was claimed in my econ courses going on half a century ago), i.e., the very opposite of asymmetric information. Well throw that one in the bin with free markets, no barriers to entry, etc.
What college tuition, airplane seating and Uber rides at busy times of day all have in common is scarcity, or at least the perception thereof, and that's what makes them acceptable for this kind of thing. Fast food and groceries, things that are common and easy to find, doing this crosses a line because it becomes obvious it's less about balancing supply and demand and more about manipulating market power to squeeze consumers, and I think any reasonable person* can understand this.
*Maybe 5-10% of the population?
I've mentioned this before but nearly everything at every level is going through price discovery and optimization. There's a price that the market finds acceptable and the balance between more sales at a lower price point and fewer sales at a higher price point may actually work in the favor of the seller.
Fixed cost to produce + profit = starting price
100 customers willing to buy at $1 = $100
50 customers will by at $2 = $100
How much harder is it to sell 100 units vs 50 units? Depends.
If you've got 50 people who think the product is worth $2 then you're still good.
If you can push those people up to $2.50, then you're going to lose some but it still might be worth it.