Many companies use pricing strategies whereby they charge different prices to different customers, based on personal data. This type of price discrimination is called personalized pricing. Through this pricing strategy, companies are trying to charge a price that is close to the consumers’ willingness to pay in order to increase their profits (Whinston, Stahl & Choi, 1997). Price discrimination has been applied for many years in various sectors. For example, E-commerce companies adjust their prices based on the website visitor’s search history. If they can deduce from the search history that an individual is highly price sensitive, it is likely that this person will see a lower price for the same good than someone who is not being considered as price sensitive (Mikians et al., 2012). Also, different prices are being charged to individuals based on for instance their geographical locations (Borgesius & Poort, 2017). With the emergence of the Internet, firms have gained more access to personal data, making it easier to apply price discrimination (Borgesius & Poort, 2017).
As data has become increasingly important in the digital age, new legislation was introduced in Europe on 28 May 2018. The General Data Protection Regulation (GDPR) aims to improve the protection of personal data by giving people more say in what companies do with their data (Europese Commissie, 2020). This law concerns many organizations, as it covers not only the data that companies have stored in their systems but also the data linked to Cookies and IP Addresses (Den Breejen, 2020).
According to the law, firms are required to be transparent in what is done with consumer data and also need the consent to use the data of the consumer (Borgesius & Poort, 2017). Therefore, the introduction of GDPR has made it more complex for companies to apply price discrimination. Previously, companies could apply price discrimination without website users or consumers being aware of it, in order to make profits. Nowadays, violating GDPR could result in high fines and damage to the company’s reputation (Schoonen, 2020). It is therefore important for companies to comply with the law.
For me, it is questionable whether companies that use personalized pricing can continue to do so while still complying with the General Data Protection Regulation (GDPR). In my opinion, greater transparency in companies’ pricing strategies could evoke feelings of unfairness. Moreover, consumers’ confidence in companies may decrease if they find out that their data is being used for profit objectives. Subsequently, this may lead to a decrease in demand for the product or service.
I am very interested in your opinion on this.
References
Borgesius, F.Z.& Poort, J. (2017). Online Price Discrimination and EU Data Privacy Law. Journal of Consumer Policy, 40(3), 347-366.
Den Breejen, A. (2020). Privacywetgeving AVG, wat moet je ermee? Available at: https://www.kvk.nl/advies-en-informatie/wetten-en-regels/privacywetgeving-avg-wat-moet-je-ermee/ [Accessed 27 September 2020]
Europese Commissie. (2020). Gegevensbescherming in de EU. Available at: https://ec.europa.eu/info/law/law-topic/data-protection/data-protection-eu_nl [Accessed 27 September 2020
Mikians, J., Gyarmati, L., Erramilli, V. & Laoutaris, N. (2012). Detecting price and search discrimination on the internet. Proceedings of the 11th ACM Workshop on Hot Topics in Networks, 79-84. HotNets-XL. ACM. http://doi.acm.org/10.1145/2390231.2390245.
Schoonen, D. (2020). Al 160,000 schendingen van de GDPR gerapporteerd. Available at: https://www.techzine.be/nieuws/security/51890/al-160-000-schendingen-van-de-gdpr-gerapporteerd/ [Accessed 28 September 2020]
Whinston, A., Stahl, D.O., Choi, S.-Y. (1997). Chapter 2: Characteristics of digital products and processes. The Economics of Electronic Commerce. Indianapolis, IN: Macmillan Technical Publishing