Friday, May 5, 2017

Recent Reading on Pricing Through the Looking Glass

The website you shop at may be charging you a different price than it charges me—for the same thing.

"They are comparison shopping us."

This is one of many articles I've read over the last year that detail the ways companies are looking at your browser history, location, time of day and other data to decide what to charge you for something they sell. It's called dynamic pricing and, for better or worse, it's something we can expect to continue, at least in some corners of the internet. Like shopping for airline flights. It's been part of plane ticket pricing for a long time and it's often maligned, sometimes frustrating, but it's worth remembering that the average domestic plane ticket costs almost half what it did in 1980 and dynamic pricing is part of the reason. 

There will always be some vendors (like my site who choose to not use dynamic pricing. My prices are fixed and to some extent I like it that way. Still, on December 22nd, after we've cut off orders for Christmas, it'd be interesting to see what someone might pay for a coffeecake...but it's not gonna happen.

Using data to have the price match the person's willingness or ability to pay is really a lot older than fixed pricing, as the article points out. It used to be called haggling. With web browsers and Amazon it sounds sinister but the principle is based in fairness. If people who can afford to pay more do pay more, then those who cannot afford to pay that much can be charged a lower price. Each pays according to their means and, in the end, the prices average out and the vendor makes the same revenue it would have if it charged everyone some hypothetical fixed average price.

In practice it's not so clear that's always what's happening. To top it off, almost none of this new big data computer haggling is transparent. The vendors hide their analysis of you in a black box. You have no idea what data they're looking at and how they evaluate it. (For more on the problems with non-transparent algorithms that segment people, the former investment quant Cathy O'Neil's book Weapons of Math Destruction is totally worthwhile.) In the end, though, I believe all secret codes don't stay secret for long. It's only a matter of time before someone cracks Amazon's dynamic pricing algorithms just like Farecast unlocked airline ticket prices. But in the meantime it does feel dirty, doesn't it?

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