Chapter 3 : Pricing of information goods
Intro : examples & rationale behind price discrimination
Examples
Personalised content
Personal recommendations based on
previous purchases. This is true for e-
commerce, streaming services,
Youtube.
If it is so easy to alter information or
products we see, it should be easy to
alter prices based on track-record seen
the received information about my
willingness to pay. The possibility to engage in price discrimination via the internet are much larger
than in physical market.
Personalised Prices ? (2000)
Tailor-made Prices… (2000)
Mostly travel sector were using this technique. Mostly first visitors received discount.
This strategy can be risky seen long-term customers may feel disappointed when they see this.
When website see that you visit them several times but do not make a purchase, they can see this
as a sign of high price sensitivity (that you are comparing websites for prices)
The idea is also to ask more to people who are less price sensitive.
Fadia Farhat | VUB 2023-2024 53
,This is on an individual level, where they charge a different price for the same product to different
customers
On a group level, website use price discrimination between bargain hunters and big spenders.
Amazon Spoiled it..
Around 2000, Amazon was doing price
discrimination on an individual level.
Disadvantage for suppliers on internet is that
there is a high transparency.
Public backlash forced them to compensate
the customers that they have overcharged.
This case showed that the risks for such strategy
was increasing.
Amazon said that this was an experiment.
10 Years later… (2012)
Software is based on cookies that reveal
where else you have been browsing,
what also gives a good guess on
people’s age, gender, family
composition, income,..
IP -> physical address -> the richer the
neighbourhood, who deeper the
pocket.
They also look at the type of computer (Apple (richer) versus Windows)
Behaviour can be an indicator : When you are fast to click, you will not receive a discount.
The travel sector.. The Ghost of Amazon..
Above two slides explain who use this strategy and why.
This is from the perspective of the supplier. But there is also the perspective of the client:
2016
Customers can also play the game act in a way to
receive reduced offers.
Fadia Farhat | VUB 2023-2024 54
,Price discrimination?
Personal experience of Professor Leo Van Hove.
He has work at Amsterdam and needed to buy many times tickets from Thalys.
He had an early voucher of 11.25 € for delay that happened on a trip before.
He had a last-minute meeting and went online to buy a ticket. The only option was a ticket at 160
€ . He wanted to use his voucher, so he goes back.
Surprise: he can now book a ticket for 58 € . Also the screen he got to see is different.
The fact that he entered the site via the voucher can be an indication for the site that he is price
sensitive. This can be an exemple of price discrimination. (He cannot proof it)
And here is the travel sector again..
Some practices of price discrimination are not legal.
See the case of Europcar, Hertz, Avis
Fadia Farhat | VUB 2023-2024 55
, Europcar, Hertz, Avis,..
Germans receive higher prices because of their residence outside UK. Discrimination on base of
residence is not allowed in the EU.
Company has different website within EU. Immediate rerouting, unable to buy products who are
cheaper on another website in another country. This is “borderline” of legal.
Data!
Unprecedented data gathering goes
hand in hand with the provision of online
services has a number of remarkable
consequences: it facilitates price
discrimination at a fine-grained individual
level.
An argument is made that politicians
should look harder at these big
companies and their growing abilities to
price discrimination.
In China, there has been more
regulations. The China market regulator
has taken a major step towards limiting a
bit the monopolistic power of the tech
giants in China. Beijin remarked that “Tactics by e-commerce companies are not leading to a
healthy development of the retail industry”.
Rationale behind price discrimination
From company perspective :
First reason is related to the cost structure.
Price-based strategy and pricing
according to MC is not a good idea seen
MC = (almost) 0.
Value-based strategy is better. Customize
products and then personalise the price
according to your value creation and
capture.
Fadia Farhat | VUB 2023-2024 56
Intro : examples & rationale behind price discrimination
Examples
Personalised content
Personal recommendations based on
previous purchases. This is true for e-
commerce, streaming services,
Youtube.
If it is so easy to alter information or
products we see, it should be easy to
alter prices based on track-record seen
the received information about my
willingness to pay. The possibility to engage in price discrimination via the internet are much larger
than in physical market.
Personalised Prices ? (2000)
Tailor-made Prices… (2000)
Mostly travel sector were using this technique. Mostly first visitors received discount.
This strategy can be risky seen long-term customers may feel disappointed when they see this.
When website see that you visit them several times but do not make a purchase, they can see this
as a sign of high price sensitivity (that you are comparing websites for prices)
The idea is also to ask more to people who are less price sensitive.
Fadia Farhat | VUB 2023-2024 53
,This is on an individual level, where they charge a different price for the same product to different
customers
On a group level, website use price discrimination between bargain hunters and big spenders.
Amazon Spoiled it..
Around 2000, Amazon was doing price
discrimination on an individual level.
Disadvantage for suppliers on internet is that
there is a high transparency.
Public backlash forced them to compensate
the customers that they have overcharged.
This case showed that the risks for such strategy
was increasing.
Amazon said that this was an experiment.
10 Years later… (2012)
Software is based on cookies that reveal
where else you have been browsing,
what also gives a good guess on
people’s age, gender, family
composition, income,..
IP -> physical address -> the richer the
neighbourhood, who deeper the
pocket.
They also look at the type of computer (Apple (richer) versus Windows)
Behaviour can be an indicator : When you are fast to click, you will not receive a discount.
The travel sector.. The Ghost of Amazon..
Above two slides explain who use this strategy and why.
This is from the perspective of the supplier. But there is also the perspective of the client:
2016
Customers can also play the game act in a way to
receive reduced offers.
Fadia Farhat | VUB 2023-2024 54
,Price discrimination?
Personal experience of Professor Leo Van Hove.
He has work at Amsterdam and needed to buy many times tickets from Thalys.
He had an early voucher of 11.25 € for delay that happened on a trip before.
He had a last-minute meeting and went online to buy a ticket. The only option was a ticket at 160
€ . He wanted to use his voucher, so he goes back.
Surprise: he can now book a ticket for 58 € . Also the screen he got to see is different.
The fact that he entered the site via the voucher can be an indication for the site that he is price
sensitive. This can be an exemple of price discrimination. (He cannot proof it)
And here is the travel sector again..
Some practices of price discrimination are not legal.
See the case of Europcar, Hertz, Avis
Fadia Farhat | VUB 2023-2024 55
, Europcar, Hertz, Avis,..
Germans receive higher prices because of their residence outside UK. Discrimination on base of
residence is not allowed in the EU.
Company has different website within EU. Immediate rerouting, unable to buy products who are
cheaper on another website in another country. This is “borderline” of legal.
Data!
Unprecedented data gathering goes
hand in hand with the provision of online
services has a number of remarkable
consequences: it facilitates price
discrimination at a fine-grained individual
level.
An argument is made that politicians
should look harder at these big
companies and their growing abilities to
price discrimination.
In China, there has been more
regulations. The China market regulator
has taken a major step towards limiting a
bit the monopolistic power of the tech
giants in China. Beijin remarked that “Tactics by e-commerce companies are not leading to a
healthy development of the retail industry”.
Rationale behind price discrimination
From company perspective :
First reason is related to the cost structure.
Price-based strategy and pricing
according to MC is not a good idea seen
MC = (almost) 0.
Value-based strategy is better. Customize
products and then personalise the price
according to your value creation and
capture.
Fadia Farhat | VUB 2023-2024 56
