Are you ready for a gas station to charge you more when you are running late or your tank is empty? Laws against price gouging typically apply in times of emergencies, for example after Hurricane Katrina. Most of the time there are no rules that limit price discrimination, and there are certainly no laws against customized products and terms of service. When you add that to the fact that federal privacy laws do a notoriously poor job of protecting our data, it’s clear that consumers are on their own.
Companies can vary their product offerings, price and contract terms from moment to moment, tailoring offers to each consumer at their specific location and point in time. Websites personalize your experience by remembering who you are and a variety of facts about you. Your browsing history, email and search terms all affect what you see. Google’s personalized search means that two people searching the same term don’t get the same results or see the same offers. Amazon recommends different products to different customers. And Netflix suggests what to watch based on what it learns about you.
Like products, price is customized all the time. From college tuition to plane tickets to groceries and medicine, consumers have already grown accustomed to paying dramatically different prices for the exact same thing. It’s accepted that the person sitting next to you on a flight or in a lecture hall might have paid half as much as you. Economists call that price discrimination, and it is proliferating throughout our economy.
The economics of data favor scale above all, shifting power from consumers to the masters of data. Over time, by mining immense databases with superhuman speed, data giants will get closer and closer to knowing what each of us is willing to pay. Sophisticated real time pricing will allow them to capture every penny, every time.
Before the internet, market power was equated with monopoly, the power of a single seller across a large market. Big data changes the game, tilting the balance dramatically in favor of data-rich sellers. Rather than raising prices uniformly across huge markets, a data-rich seller can opportunistically exercise power where traditional monopoly is not visible, charging extra for gas today and a bit more for a movie tomorrow. That granular capability is entirely new, and requires new responses.
That’s why antitrust enforcement has become more important than ever as big data supercharges the power of traditional monopolies. Consumers are just as vulnerable to the effects of personalized pricing as they are to price fixing – yet the government has done little to put safeguards in place. That’s why we must start with protecting the very weapon that companies use against us: our data. Read more…