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Picture this:
- You type on Google “laptop won’t turn on”
- Google now knows you have a broken laptop and can estimate how desperate you are to fix it.
- Because it knows how desperate you are, it can increase shop prices proportionally.
You are going to pay the maximum they get you to pay.
That’s algorithmic pricing.
The more companies know about you, the more they can predict and sell how desperate you are to other stores out there.
An internet-connected car knows much more about you than you realize. A smart TV also knows what you like. Your Alexa knows if there is a problem in the home.
Privacy is much more than just sensitive data.
It’s about not giving leverage away.
Because algorithms will use it against you.
Be safe out there.
This framework you describe is still grounded in a large number of producers intentionally avoiding undercutting the competition in price.
If a profit can be made selling burgers for $10, and literally every burger seller knows that I’m happy paying $15 for a burger, they still have to compete with each other to get my business. Am I going to choose the place that charges everyone $10, or the place that I know engages in opaque pricing and is offering me $15? The most sophisticated price discrimination algorithm in the world doesnt do any good if the other burger shops don’t play along.
And this plays out every day in places like airports. Yes, I know I just need to eat before I jump on my connecting flight, and I’m not super price sensitive in that situation. But I won’t go to the place that’s far and away more expensive than another, or who I just recently read about on some travel blog as a price gouger.
And for a more concrete example of something that happens today, with services that are worth a completely different price than what it costs to provide it, and where everyone knows the buyer is valuing the service at that high value. Say I have an unfinished basement, and I want to hire a contractor to finish it with drywall, paint, flooring, HVAC, etc. It’s obvious to everyone how much that project adds to the livable square footage, and plenty of public valuation models show exactly how much that job adds to the value of the home. And everyone knows I’m about to list the home afterward for sale. But if 10 contractors are competing for the job, they don’t really care what value it provides to me if I choose not to hire them, so they’re bidding prices that cover the level of profit they want to make on the job, while not ceding the price advantage to the competition. The presence of competition tempers the price gouging.
So I still think competition is the key policy to pursue. Competition solves the problem being described here, and any market with this kind of individualized price gouging is suffering from insufficient competition.