After reading the article “Pricing Information” (Shapiro et al, 1998) I realised that new digital marketing technologies and pricing strategies lead to the redistribution of income without government interference.
The article outlines the importance of knowing your customer and personalising your product in order to successfully implement a differentiation strategy as an online company. New digital marketing technologies offer many new opportunities to gain relevant customer information which can be used to differentiate your price and your offer to specific customers. These technologies have in common that they are based on the principle of data collection and data analysis. Examples from these technologies are the use of cookies, mouse tracking or location tracking. When you are buying a flight ticket when you live a rich neighbourhood, while using an Apple Macbook on the same site where you bought flight tickets earlier it is very likely that you receive a more expensive offer for the exact same flight as someone who uses a Dell laptop and lives in a generally poorer area.
This development, in my opinion, has a positive side effect on the distribution of income. In many countries governments are interfering in the free markets, for example by applying taxes, in order to realise a social redistribution of income. Rich people end up paying more taxes than poorer people. There is a lot of criticism from different political views about how fair this government interference is. Liberal parties are usually the ones who want to change this system because the think it is not fair to charge rich people with a higher tax percentage than poorer people. With the new technological developments enabling companies to apply personalised pricing policies the situation arises that a redistribution of income in a social way occurs without government interference and thus can’t be criticised by people who support the liberal political view. I am very interested in the opinion of people with a liberal political view on how fair they consider this new development. For me it is a funny that a pricing policy which in very much in line with the liberal view on business leads to a social system where rich people end up paying more for the exact same product as poorer people.
Is there really an effect on income distribution? From my perspective it seems like companies who are able to implement these price discrimination will just earn more. They keep making a profit, making their shareholders richer in the end. A progressive tax system already charges the wealthiest more and with this kind of price discrimination they pay more taxes and more for their products. What is said in the Pricing Information literature is that a premium can be charged if products/information is tailored to the costumers need, which is way more fair to me than price differentiation based on location/device. Both of which can be spoofed rather easily with the right tools.
I think it is an interesting way of seeing the targeting done by firms. I get your punt, however I agree with Max when saying that firms only do it to make profit. I don’t think the effects will me reaching that far for unequal distribution to happen