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Big Data and Differential Pricing

Big Data and Differential Pricing

The Whitehouse, USA | February 2015

Executive Summary

Big data refers to the ability to gather large volumes of data, often from multiple sources, and with it produce new kinds of observations, measurements and predictions. Commercial applications of big data deserve ongoing scrutiny given the speed at which both the technology and business practices are evolving. One of the many questions raised by big data is whether companies will use the information they harvest to more effectively charge different prices to different customers, a practice that economists call price discrimination. Economics suggests that many forms of differential pricing, such as senior citizen discounts at the box office or tiered pricing for air travel, can be good for both businesses and consumers. However, the combination of differential pricing and big data raises concerns that some consumers can be made worse off, and have very little knowledge why. This report finds that many companies already use big data for targeted marketing, and some are experimenting with personalized pricing, though examples of personalized pricing remain fairly limited. While substantive concerns about differential pricing in the age of big data remain, many of them can be addressed by enforcing existing antidiscrimination, privacy, and consumer protection laws. In addition, providing consumers with increased transparency into how companies use and trade their data would promote more competition and better informed consumer choice.

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