Yesterday the White House released a report discussing how companies are using big data to charge different prices to different customers, a practice known as price discrimination or differential pricing. The report describes the benefits of big data for sellers and buyers alike, and concludes that many concerns raised by big data and differential pricing can be addressed by existing antidiscrimination and consumer protection laws.
Big Data and Personalized Pricing
“Big data” refers to the ability to gather large volumes of data, often from multiple sources, and use it to produce new kinds of observations, measurements, and predictions about individual consumers. Thus, big data has made it easier for sellers to target different populations with customized marketing and pricing plans.
The White House report identifies two trends driving the increased application of big data to marketing and consumer analytics. The first trend is the widespread adoption of new information technology platforms, most importantly the Internet and the smartphone. These platforms give businesses access to a wide variety of applications like search engines, maps, blogs, and music or video streaming services. In turn, these applications create new ways for businesses to interact with consumers, which produce new sources and types of data, including (1) a user’s location via mapping software; (2) their browser and search history; (3) the songs and videos they have streamed; (4) their retail purchase history; and (5) the contents of their online reviews and blog posts. Sellers can use these new types of information to make educated guesses about consumer characteristics like location, gender, and income. The second trend is the growth of the ad-supported business model, and the creation of a secondary market in consumer information. The ability to place ads that are targeted to a specific audience based on their personal characteristics makes information about consumers’ characteristics particularly valuable to businesses. This, in turn, has fostered a growing industry of data brokers and information intermediaries who buy and sell customer lists and other data used by marketers to assemble digital profiles of individual consumers.
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