paper on privacy and price discrimination-for IP

[Dave Farber <dave () farber net>]

worth reading  djf

> Date: Sat, 26 Jul 2003 18:37:04 -0400
> From: "Faulhaber, Gerald" <faulhabe () wharton upenn edu>
> Subject: FW: paper on privacy and price discrimination-for IP
> To: dave () farber net
>
>
> Dave--
>
> Just received and read this paper from my colleague Andrew Odlyzko
> (former AT&T Bell Labs mathematician, now at U Minn) on privacy.  A very
> unusual and I believe compelling insight into privacy in commercial
> dealings.  Link is below.  You may want to put it on IP.
>
> Gerry
>
> -----Original Message-----
> From: Andrew Odlyzko [mailto:odlyzko () dtc umn edu]
> Sent: Friday, July 25, 2003 11:06 AM
> To: odlyzko () dtc umn edu
> Subject: FYI: paper on privacy and price discrimination
>
>
> The paper "Privacy, Economics, and Price Discrimination on the
> Internet," to appear in the Proc.  5th International Conference
> on eCommerce, is now available on my Web page.  I thought it might be of
> interest to you, and apologize for the spam if it is not.
>
> Best regards,
> Andrew Odlyzko
>
>
>
>
> full paper URL:
> http://www.dtc.umn.edu/~odlyzko/doc/privacy.economics.pdf
>
>
>
>
>              Privacy, Economics, and Price Discrimination
>                        on the Internet
>
>
>                        Andrew Odlyzko
>
>                  Digital Technology Center
>                   University of Minnesota
>                   Minneapolis, Minnesota
>
>                      odlyzko () umn edu
>               http://www.dtc.umn.edu/~odlyzko
>
>
>                       Abstract:
>
> The rapid erosion of privacy poses numerous puzzles.  Why is it
> occurring, and why do people care about it?  This paper proposes an
> explanation for many of these puzzles in terms of the increasing
> importance of price discrimination.  Privacy appears to be declining
> largely in order to facilitate differential pricing, which offers
> greater social and economic gains than auctions or shopping agents.  The
> thesis of this paper is that what really motivates commercial
> organizations (even though they often do not realize it clearly
> themselves) is the growing incentive to price discriminate, coupled with
> the increasing ability to price discriminate.  It is the same incentive
> that has led to the airline yield management system, with a complex and
> constantly changing array of prices.  It is also the same incentive that
> led railroads to invent a variety of price and quality differentiation
> schemes in the 19th century.  Privacy intrusions serve to provide the
> information that allows sellers to determine buyers' willingness to pay.
> They also allow monitoring of usage, to ensure that arbitrage is not
> used to bypass discriminatory pricing.
>
> Economically, price discrimination is usually regarded as desirable,
> since it often increases the efficiency of the economy.  That is why it
> is frequently promoted by governments, either through explicit mandates
> or through indirect means.  On the other hand, price discrimination
> often arouses strong opposition from the public.
>
> There is no easy resolution to the conflict between sellers' incentives
> to price discriminate and buyers' resistance to such measures. The
> continuing tension between these two factors will have important
> consequences for the nature of the economy.  It will also determine
> which technologies will be adopted widely.  Governments will likely play
> an increasing role in controlling pricing, although their roles will
> continue to be ambiguous.  Sellers are likely to rely to an even greater
> extent on techniques such as bundling that will allow them to extract
> more consumer surplus and also to conceal the extent of price
> discrimination. Micropayments and auctions are likely to play a smaller
> role than is often expected.  In general, because of the strong
> conflicting influences, privacy is likely to prove an intractable
> problem that will be prominent on the the public agenda for the
> foreseeable future.

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