Competitive Intelligence

Price Discrimination, the Internet & Buyer's Remorse - Bye-Bye, Privacy; Hello, Negotiation

Price discrimination isn't just for the airline yield management system anymore. So says Andrew Odlyzko of the University of Minnesota's Digital Technology Center.

In an AP story I read wired to my local newspaper over the weekend, I found it ironic and enlightening that, in an era when the Internet was supposed to erode the ability and incentive for companies to discriminate between customers in terms of prices offered for the same goods and services, just the opposite has happened.

In doing a little more research on the subject, I found another intriguing article from BusinessWeek Online that called discriminatory pricing the "holy grail of capitalism". Here are two good quotes from that one:

1. Economic theory posits that price discrimination - where companies charge individuals based on their ability to pay and their value as a customer - is desirable since it makes trade more efficient. Yet it rankles consumers, who perceive differential pricing as unfair. The fact that business travelers, whose corporations can arguably afford it, pay more for airline seats than a vacationer has made air travel more popular and routine. At the same time, the price discrimination that charges two people different prices for the same class of service infuriates those who pay more.
   
   
2. In 2000, Coca-Cola tested a vending machine that would raise prices on a hot, humid day and lower them when temperatures fell. Today, Amazon.com knows what, when, and how often customers buy and is experimenting with offering personalized bundles -- buy two books and get a discount, for example - to induce people to buy more. Twenty years ago, neither experiment would have been possible.
   
   

That's why people hate to negotiate - in dealing with used car salesmen, one can't help feeling like something of a "sucker" by the time the transaction is finished. People fear buyer's remorse even more than they fear getting taken for a ride - that fundamental sense of fairness in negotiating power remains truly illusory.

Of course, Priceline.com has set something of a standard on this front, by allowing customers to set their own prices for the stuff they buy; provided, would-be buyers understand the penalties of bidding too low.

It would seem, the carefree days of buying something for the posted price are long gone. And I'm not thrilled at having to negotiate my way to the best deal for every little grocery store purchase the rest of my life either.

- Arik