It feels a bit like I jumped the gun on yesterday's post about surge pricing in fast food, because overnight the Financial Times published an article by Rana Faroohar on surge pricing (gated), where she wrote:
But I suspect that even more change — and more demands for tougher, clearer cut regulation — will come as online business models make their way into old-fashioned businesses where people are simply accustomed to much clearer rules. As consumers become more aware of how the tricks of surveillance capitalism are being used in businesses that they first used in the physical world, it may draw attention to the need for clear, straightforward rules — applying the existing laws of the physical world to online customer protection.
I’d love to see the FTC, for example, use its rulemaking power to stipulate a “thou shalt not discriminate” statue that makes it illegal to charge people different prices for different goods, no matter how and where they are buying them. What’s illegal in the physical world should also be illegal in the online world. This would put the onus on companies to prove that they are not causing harm, rather than forcing regulators to create a distinct and more complex system for a particular industry.
Tougher, clearer cut regulation is certainly possible here, but I don't think most consumers would be happy about the obvious unintended consequences. Depending on how the regulations are worded, there are a lot of things that consumers would be giving up in order to have price parity for everyone.
Let's start with making price discrimination (charging consumers difference prices for the same good or service) illegal. This would be the most heavy-handed regulation, and have the most severe unintended consequences. Haggling with your appliance store or car dealer? Probably no longer possible, because that would lead to some consumers (the non-hagglers) paying a higher price than others (the hagglers). Free trials? Loyalty card discounts? Special deals for subscribers? Daily deals websites (like Grabone)? All gone. Quantity discounts? By-two-get-one-half-price? Coffee cards that give you your tenth coffee for free? It's hard to see how any form of block pricing would survive this regulation. 'No claims discounts' for insurance? Probably also gone.
So, eliminating price discrimination entirely is obviously problematic and it would be difficult for policy-makers to write exceptions for those cases that wouldn't create big loopholes that sellers could exploit. Moreover it isn't clear that eliminating price discrimination would result in lower prices for consumers. If government makes Gold Card discounts for seniors, or discounts for students or staff members, illegal, then it seems to me that prices go up, not down.
What about more focused regulation? What if the government simply made charging different prices at different times of the day, or different days, illegal? That would be the end of 'early bird' price discounts. Late-comers end up paying a higher price than the early birds, so they would be regulated out of existence. Similarly flights could no longer be cheaper if purchased well in advance. Cheap matinees for shows or movies? Happy hour drinks? Also gone. Could market stalls or bakeries still sell the leftover goods at the end of the day for a discount? It seems unlikely.
So, the regulation would have to be even more specific than that. What about regulation that prevents rapid or frequent changes in price. Let's put aside the difficulty of how this would be policed. Would firms have to apply to the Commerce Commission before they were allowed to change price? Or would there be limits on how often prices can be changed (like the law in Scotland that prohibits changing the price of drinks within 72 hours of the last price change [*]). Anyway, how would this most focused regulation deal with auction sites? Not only is it next to impossible to have auctions where every buyer pays the same price, it is next to impossible to ensure that auctions for the same item don't fluctuate widely in price, even within the same day. You could carve out an exception for financial markets, but you couldn't have an innovative firm like The Beer Exchange (although given that at least one site has recently closed down, maybe it isn't a successful business model anyway).
There's a reason that governments don't already regulate dynamic pricing. It's in the too-hard basket, and for good reason. 'Fixing' problems caused by dynamic pricing would break so many other things that consumers actually benefit from. As another example, it's not clear to me that government should be making Gold Card discounts for seniors, or discounts for students or staff members, illegal.
Current discrimination laws already protect consumers from discrimination on the basis of protected characteristics, such as gender, ethnicity, sexual orientation, and so on. It's not clear what we gain if the government institutes further protections from dynamic pricing. But as consumers, we could certainly lose a lot.
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[*] This led to a whole different set of unintended consequences, with happy hours stretching out to become happy days!
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