I just bought by parents a new computer from Dell on the Dell website. When I had originally configured it, and tried to send my parents a link so they could just buy what I had configured, it didn't work, so I had to do it again about a week later. When I re-did it, I went through dell small business instead of their regular home user site. The exact same computer was over $200 less.

I believe this is well known about Dells site; I knew about it beforehand but had forgotten and just got lucky that my parents couldn't buy the first PC. But this isn't how the internet is supposed to work! I'm supposed to be able to go to places like pricewatch or just search around the web and find myself the best price. But places like amazon.com and airlines have been price discriminating for a while on the internet. As retailers are able to gather more and more information about us, price discrimination on the internet is growing rapidly.

There is an article in last weeks Economist about this very subject. Unfortunately it's in their premium content section, but I can link to the paper they site, "Privacy, Economics and Price Discrimination on the internet", by Andrew Odlyzko.

Price discrimination is much more difficult for goods than it is services - theoretically a secondary market for Dell computers could open up, if I bought a ton from dell small business and tried to sell them at some middle price point. Heck, this type of reselling is big news right now, when it comes to perscription drugs. But this can't happen for airline tickets due to federal law about who's name has to be on the ticket, and services are impossible to resell - look at the price discrimination (scholarships) at Universities for a good example.

The real difficulty of price discrimination is that people loathe it. The idea of paying more than someone else had to drives people nuts. So the key is to either find a way to make it acceptable (such as the aforementioned scholarships), mask or protect it with laws (airlines), or hide it. From the economist:

They already discriminate in the non-electronic world: petrol stations, for example, charge more in some parts of town than in others. But two techniques look likely to flourish: loyalty clubs, which extract additional information from members and give them discounts; and “bundling”, or the offering of packages of services, partly in order to make it harder for consumers to compare the prices of individual components.



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