The behavioral cost of personalized pricing
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The result is leverage pervasively used to select information competitive with customer value. And also used to drain margins from ad buyers and all upstream economic input.
People complain endlessly about the downside to surveillance and personalized manipulation, but don't seem to have an appetite for more than that.
I view the centralization, surveillance and manipulation as all ethical problems, because they all involve negative externalities (weaponizing unpermissioned or dark-permissioned information, manipulating people based on their past behaviors and characteristics, and bleeding product providers).
Scalable ethical problems that pay, are not resolved by any means that don't resolve the ethics with economics. I.e. law or hard regulation, backed up by considerable fines ensuring risk-reward losses for perpetrators, and criminal charges for serious or repeat offenders.
Given the tremendous centralization and privacy violations, the problem is orders of magnitude worse than normal price fixing.
The basic idea is that the real value in advertising is as a signaling mechanism, and targeted advertising removes most of that signal.
I feel like personalized pricing has some of the same issues, in that it erodes consumer trust and makes it more and more difficult for consumers to confidently spend their money in the market. I am not sure how we fix the problem, though, because it is a collective action problem; any individual company will need to use personalized pricing to compete, but that behavior will hurt the economy as a whole.
I don't know the solution to this problem.
Marketing ads are signalling, brand recognition, etc. You want the cool earbuds that everyone knows. You want to buy them from a big, reputable company with good r&d.
Sales is simpler - click on the ad and buy the product. It tends to be a bit sleasier - sales doesn't care as long as it makes a sale.
There's often a bit of tension between sales and marketing. A 50% ooff exploding offer can be good for sales in the short term, but can make the brand look cheap.
I don't quite follow... Advertisers want their product sold. Consumers want to buy whichever product is most suitable for their needs (based on both price and performance), ad networks have every incentive to connect these two.
In an ideal world an ad network would show me 10 ads for products I want to buy (ie. new shoes, ice cream, etc). I would have confidence that those products are the exact ones I want and that any more research would only show up inferior (worse value) products.
The ad network gets to take no profit margin - since if it did, I could find that same product cheaper elsewhere.
This leads to an equilibrium where the ad network shows mostly the perfect products - and charges a small margin - where the margin size is set to be slightly below my willingness to shop around for a better deal.
Personalized pricing just represents different users estimated willingness to shop around - but if the model is correct, even those paying a higher price are happy with the situation or else they'd shop around.
An ideal ad network would not show you a product ideal for you, but a misleading ad for the lowest-cost product you'll buy for the most expensive price, with 95% of the difference pocketed by the ad network.
Just the fact that you are running an advertising campaign of a certain size used to be a signal in itself. Same with advertising in or for subcommunities. That signal is heavily dilluted by targeted advertising
Similarly, personalized pricing is removing signal from the price. Sure, price was always a noisy signal, but better a noisy signal than no signal
Ideal for who? What if you don't want to buy anything, much less have all of your personal information hoovered up and sold/shared/exfiltrated around to everyone in the world for the benefit of the advertisers that have no value for you?
e.g. if they know you absolutely need to get on a flight (dying family member or something), what is their incentive to find you the best one rather than gouging you? And if they sell that information to other groups so everyone knows to gouge you?
Regulation that causes big business to lose money and rich people to be a little less wealthy so society is better
the goal of advertising is not to inform, it is to sell, even if that means manipulating people.
I imagine trying to continuously cycle accounts will run into various blocks, e.g. you can't sign up using your email/phone/credit-card because it is already linked to an existing account.
I hate the way the world is going. As the article states, Uber can probably classify my exact spending habits to maximize a price I'm willing to pay for. But id much rather them have to treat me as a new soul every time, and hopefully along those lines have to fight a bit harder to get my business.
But I have actually no idea if drivers can say "no" based on ratings.
In general I would agree with you.
Why? Competition for instance, works fine even with price discrimination, because bidders will still compete with each other on offering the lowest price.
The technology to do the same based on who looks at the price tag is already here, it's just blocked by privacy laws and the risk of bad reaction when you'll notice that prices decrease when the guy next to you looks at the product
The most obvious possibility omitted is that your wife got the first, easy, cheap car and then Uber had to quote you a higher price to get a second car. Cars don't fall from the sky; if two people successively ask for bids, how else could it work? What if the app quoted you both the cheap price for the only car within X blocks, and you bought it before she did? Is it suddenly going to go 'oops sorry, changed my mind, it now costs twice as much'? Sounds like a very bad experience to me! More sensible to give the first person a low quote and then when - unexpected and unpredictably - someone requests something similar, quote them the higher price reflecting the sudden local micro-shortage.
(This is the flipside of personalized pricing: it's also lower prices, as noted in some of the anecdotes, although he mostly emphasizes the potential for higher prices.)
In my experience, I usually don't see this kind of price change before the request has actually been confirmed - and I have seen Lyft change the price between showing me the estimate and confirming the request (with an apologetic confirmation dialog, possibly only after some holding period has timed out).
Maybe in my case where the high quote came first, the opposite scenario happened - a glut of drivers appeared between my request and hers, raising supply.
Opaque pricing is powerful partly because we don't know. This enables people to construct a plausible story to explain any price.
(The right way to do this is to randomize multiple independent occasions - wait until one of you was about to call an Uber, immediately flip a coin to decide who does, each time checking you or your wife's Uber, and never both, and compare the long-run average.)
> with an apologetic confirmation dialog, possibly only after some holding period has timed out
Right. I've seen the same thing myself. They would prefer not to apologize to the customer because they changed the price, because it is in fact annoying and a bad customer experience. So the prices are surely carefully set in many ways with an eye towards not changing as much as possible.
> This enables people to construct a plausible story to explain any price.
Indeed. So you should mention one of the most plausible stories if you're going to list a bunch of them.
[1] https://len-sherman.medium.com/how-uber-became-a-cash-genera...
I say 'no thanks' when the cashier wants to know my phone number, even if I am paying cash.
It is almost impossible to remain anonymous in the consumer space, even if you are really trying.
so people want efficient markets and price discovery..but only when it results in them paying lower prices? otherwise the law should step in and preferably set prices by fiat or magic?
ok my personal take on buyng knick knacks in chatuchak is.. assume everything is cheap , thats why i come to thailand, i can afford this...
Ridiculous.
It's not the invisible hand, it's the very material effect of both surveillance technology and social and psychology studies.
I find it very dystopian what is described here. Enshittification at the high level and the end of trust
Of course there was always wiggle room, but they are either expected (like for the case of prices, the sales, haggling in some countries), or at the marge, but once everything around you is controlled by the algorithm that knows you better than yourself, what's the point ?
Yeah there will always be people with the mindset allowing them to thrive in these situations, and I'm maybe a dinosaur looking at the metro coming down.
But I don't believe that we can live in a sane society dedicated to extract the maximum value possible from individuals before throwing them away like garbage and where nothing is stable or predictable.
It seems distasteful on the surface of course but could it be macroeconomically a good thing?
Obviously the fatal flaw is that capitalists are running it for their own gain but logically how would it play out?
This is like the ultimate version of going back 1000+ years economically and socially. Where a merchant would size up how desperate or rich they thought you were and charged you based on that rather than a reasonable price.
It wastes the time of the poor whom must be willing to walk away without anything when they can "afford it" and further deepens the problems when you are desperate.
Except now they can also spy on you 24x7 and buy information from other spys while they make their decisions and have 100% information asymmetry. Now they also HAVE to charge you more to make back the money they spend spying on you rather than just running a normal business.
You already answered your own question though. It is the peak of exploiting power wealth disparity, there is zero chance of it being used beneficially.
If we live in a more socialist future where there are mechanisms to prevent corporate greed from accelerating wealth inequality, I feel like it could find a beneficial equilibrium. I think, given the choice, most [non-luxury] businesses would rather have more customers than price out poor people entirely. They would be subsidized.
Put another way, do "one price for everyone" and "customer blindness" benefit rich people or poor people more?
I would say "one price for everyone" has indisputably been proven to benefit the poor more. This is just based on the last 100 or so years of the average persons live quality being raised by astronomical amounts because of the paradigm of customer blindness. Fixed prices are a very recent thing and if you look around it worked out pretty well. This new pricing is 100% predatory. backwards.
If you can point me in the direction of any sources of data or research that demonstrate this specific causation I would be interested to learn more.
This article finds that "tailoring price according to willingness to pay is theoretically sound but culturally still questionable."
https://wiglafjournal.com/fixed-vs-variable-pricing/
I think it's important to separate discussion of the abstract concept from a particular implementation (though both are relevant). "It is important that such segmentation be fair, however, if you want your customers to accept variable pricing."