The End of Privacy and Implications on Price Discrimination
In the age of the information where companies like Google and Facebook make a bulk of their profits from collecting and selling our personal data, it seems there is nowhere our personal data can hide. For now, this means better-tailored advertisements and tracking of your browsing habits to gain customer insights. In the long-run as firms continue to invest in ways to both harvest and capitalize on this information, we could see increases in price discrimination.
This isn’t necessarily a bad thing however. The ability of a firm to charge consumers their willingness to pay can actually increase social welfare if firms respond by selling more output to consumers that may have not been willing to buy at the higher price. For an informative example of this idea we can think of colleges and universities. Colleges give students varying amounts of financial aid: in other words, they charge different prices to different students. They are able to do this because they have a lot of information on the students’ financial status from tax records and forms like the FAFSA. Financial aid benefits both the students who can now attend college and the colleges that are able to take in more tuition.
If we apply this idea to everyday items purchased on the internet we can imagine sellers that are able to gain access to information such as our spending habits, income, and preferences to determine how much we are willing to pay for their product. We may not even notice if we happen to pay more for everyday essentials, but more price sensitive consumers will see large welfare increases when they are able to purchase simple luxuries at a more affordable price.