YickertyYackety

Capitalism and communism converge online

The ability to quickly compare prices online is leading to price convergence, right? Wrong. To explain why, Andrew Odlyzko has written a very interesting report (also covered in The Economist) about online privacy and price discrimination. His main conclusions:

• The internet gives companies unprecedented information on which to base discriminative pricing policies. Economically speaking, this is a good thing because more efficient pricing results in greater output.
• Based on an analogy with the 19th century railroads, he foresees a huge public backlash due to percieved unfairness. He also thinks that the threat of price discrimination is a primary reason why people like to protect their online privacy.
• Based on the same rail analogy, he expects legislation to control the extent and types of permissable price discrimination. Ironically, this will tend to act in favour of companies and against consumers because it will ultimately reduce competition.

Along the way, there are lots of interesting snippets, from descriptions of the inhuman way in which third-class rail passengers used to be treated to examples of legal forms of disrimination (including, apparently, against lawyers — yeah!). There's also an interesting observation on the fact that price discrimination is where communism and capitalism converge. Plenty of food for thought. Read it.