Should Amazon.com be able to charge you more than someone else?

Should Amazon.com be able to charge you more than someone else? The unfounded worry over price discrimination based on shopping history.

MONTREAL -- The theme of this year's Computers Freedom and Privacy conference here is autonomy, and an unexpected subtext were left-of-center activists fretting about whether data-mining will let online businesses charge customers different prices.

Usually this is expressed as: Will Amazon.com charge me more for certain products based on what it knows as my purchasing history?

In September 2000, reports said that Amazon.com was offering the same DVDs to different customers at discounts of 30, 35 or 40 percent. Amazon said it was a random price test, but after criticism, it decided to refund the difference to anyone paying the higher price and pledged not to do it again.

This week at CFP in Montreal, Jeff Chester and Chris Hoofnagle both warned about the privacy implications of price discrimination becoming widespread. (Chester runs the Center for Digital Democracy, which joined in a complaint against Google and DoubleClick last month, and Hoofnagle is a former activist at the Electronic Privacy Information Center who now works at a law clinic at the University of California, Berkeley.)

"Why can't we have something in the laws of identity that says you can't ask for identity for some stupid purpose, such as 'Serving You Better,'" Hoofnagle asked after a panel on Friday, referring to a set of best practices rather than government regulation. Chester told me that he believes that price discrimination will become a real threat.

But is price discrimination really so worrisome? In general, it's legal unless it's based on certain legal categories as race, religion, national origin or gender. There's also a federal law called the Robinson-Patman Act that's relevant.

That said, price discrimination is commonplace. Economist David Friedman points out that it happens frequently, for instance charging less for children than for adults at movie theaters. A child takes up the same sized seat as an adult, but price discrimination happens either because minors are less able to afford the cost themselves, or that parents won't bring multiple children if the full price is charged.

Price discrimination happens in terms of Slashdot subscriptions for advance article viewing, youth fares for trains, paperback vs. hardcover books, advance purchase vs. last-minute airline fares, and even Book of the Month Club selections, which are cheaper than the same title purchased at a bookstore. Haggling at bazaars and car dealers is price discrimination. So is ladies' night at bars and charging different prices for men's haircuts vs. women's when similar work is involved. And it happens when retailers send coupons to their best customers but ignore occasional ones.

But it doesn't always work. For one thing, a business needs to be able to figure out who will pay the higher price; if it makes the individual price too high it will lose a sale. Second, customers that buy something at a low price can turn around (if the difference makes it worthwhile) and profit by selling it at the market price.

And there are excellent reasons to think it won't work that well online when Internet retailers try to use a customer's purchase history to generate individualized prices that are higher than prices charged to new customers.

That's because for two reasons: First, online shoppers are very price-sensitive, and second, they talk. A lot. It's easy enough to use two different Web browsers -- one logged into your account and one that's not -- to check prices on Amazon.com. And it's even easier to post your findings online to one of scores of Web sites that specialize in price tracking.

So is price discrimination a worry? Do we need new laws banning Amazon.com from doing it? Probably not. In fact, the most common type of price discrimination that happens online is retailers giving out coupons to existing customers, something that's wildly popular. But that won't stop privacy activists from trying to make an issue of it anyway.

 

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